Hangzhou DPtech Technologies Co.,Ltd.'s (SZSE:300768) 33% Jump Shows Its Popularity With Investors

The Hangzhou DPtech Technologies Co.,Ltd. (SZSE:300768) share price has done very well over the last month, posting an excellent gain of 33%. Unfortunately, despite the strong performance over the last month, the full year gain of 6.3% isn't as attractive.

Following the firm bounce in price, Hangzhou DPtech TechnologiesLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 73.2x, since almost half of all companies in China have P/E ratios under 29x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Hangzhou DPtech TechnologiesLtd has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Hangzhou DPtech TechnologiesLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hangzhou DPtech TechnologiesLtd.

Is There Enough Growth For Hangzhou DPtech TechnologiesLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Hangzhou DPtech TechnologiesLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.9%. As a result, earnings from three years ago have also fallen 56% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the dual analysts watching the company. With the market only predicted to deliver 19% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Hangzhou DPtech TechnologiesLtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Hangzhou DPtech TechnologiesLtd's P/E?

The strong share price surge has got Hangzhou DPtech TechnologiesLtd's P/E rushing to great heights as well. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Hangzhou DPtech TechnologiesLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Hangzhou DPtech TechnologiesLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.