Investors Appear Satisfied With Victory Giant Technology (HuiZhou)Co.,Ltd.'s (SZSE:300476) Prospects As Shares Rocket 26%

Victory Giant Technology (HuiZhou)Co.,Ltd. (SZSE:300476) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 56%.

Since its price has surged higher, given close to half the companies in China have price-to-earnings ratios (or "P/E's") below 28x, you may consider Victory Giant Technology (HuiZhou)Co.Ltd as a stock to avoid entirely with its 47x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Victory Giant Technology (HuiZhou)Co.Ltd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Victory Giant Technology (HuiZhou)Co.Ltd

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Is There Enough Growth For Victory Giant Technology (HuiZhou)Co.Ltd?

The only time you'd be truly comfortable seeing a P/E as steep as Victory Giant Technology (HuiZhou)Co.Ltd's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.8% last year. EPS has also lifted 15% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 24% per annum growth forecast for the broader market.

With this information, we can see why Victory Giant Technology (HuiZhou)Co.Ltd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Victory Giant Technology (HuiZhou)Co.Ltd's P/E

The strong share price surge has got Victory Giant Technology (HuiZhou)Co.Ltd's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Victory Giant Technology (HuiZhou)Co.Ltd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

It is also worth noting that we have found 1 warning sign for Victory Giant Technology (HuiZhou)Co.Ltd that you need to take into consideration.

Of course, you might also be able to find a better stock than Victory Giant Technology (HuiZhou)Co.Ltd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com