After Leaping 30% Launch Tech Company Limited (HKG:2488) Shares Are Not Flying Under The Radar

Despite an already strong run, Launch Tech Company Limited (HKG:2488) shares have been powering on, with a gain of 30% in the last thirty days. This latest share price bounce rounds out a remarkable 380% gain over the last twelve months.

After such a large jump in price, given around half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 10x, you may consider Launch Tech as a stock to potentially avoid with its 14.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Launch Tech certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Launch Tech

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Launch Tech will help you shine a light on its historical performance.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 108% last year. Pleasingly, EPS has also lifted 285% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Launch Tech is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Launch Tech's P/E

Launch Tech's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Launch Tech maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term 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 Launch Tech that you need to take into consideration.

You might be able to find a better investment than Launch Tech. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.