Eoptolink Technology Inc., Ltd.'s (SZSE:300502) 30% Jump Shows Its Popularity With Investors

Eoptolink Technology Inc., Ltd. (SZSE:300502) shareholders have had their patience rewarded with a 30% share price jump in the last month. The annual gain comes to 145% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Eoptolink Technology's price-to-earnings (or "P/E") ratio of 72.1x might make it look like a strong sell right now compared to the market in China, where around half of the companies have P/E ratios below 30x and even P/E's below 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Eoptolink Technology has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Eoptolink Technology

Keen to find out how analysts think Eoptolink Technology's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Eoptolink Technology's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Eoptolink Technology's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 40%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 32% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 95% over the next year. That's shaping up to be materially higher than the 41% growth forecast for the broader market.

In light of this, it's understandable that Eoptolink Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Eoptolink Technology have built up some good momentum lately, which has really inflated its P/E. 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 Eoptolink Technology'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. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Eoptolink Technology (1 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.