Victory Giant Technology (HuiZhou)Co.,Ltd.'s (SZSE:300476) 41% Jump Shows Its Popularity With Investors

Victory Giant Technology (HuiZhou)Co.,Ltd. (SZSE:300476) shareholders would be excited to see that the share price has had a great month, posting a 41% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 78%.

Following the firm bounce in price, Victory Giant Technology (HuiZhou)Co.Ltd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 43.1x, since almost half of all companies in China have P/E ratios under 33x and even P/E's lower than 20x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Victory Giant Technology (HuiZhou)Co.Ltd has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. 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

Keen to find out how analysts think Victory Giant Technology (HuiZhou)Co.Ltd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

Victory Giant Technology (HuiZhou)Co.Ltd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. As a result, it also grew EPS by 9.2% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 35% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Victory Giant Technology (HuiZhou)Co.Ltd shares have received a push in the right direction, but its P/E is elevated too. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Victory Giant Technology (HuiZhou)Co.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Victory Giant Technology (HuiZhou)Co.Ltd that you need to be mindful of.

If you're unsure about the strength of Victory Giant Technology (HuiZhou)Co.Ltd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.