Investors Holding Back On Launch Tech Company Limited (HKG:2488)

Explore Launch Tech's Fair Values from the Community and select yours

With a median price-to-earnings (or "P/E") ratio of close to 13x in Hong Kong, you could be forgiven for feeling indifferent about Launch Tech Company Limited's (HKG:2488) P/E ratio of 11.1x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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With earnings growth that's exceedingly strong of late, Launch Tech has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Launch Tech

Although there are no analyst estimates available for Launch Tech, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Launch Tech's Growth Trending?

In order to justify its P/E ratio, Launch Tech would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 51%. The strong recent performance means it was also able to grow EPS by 368% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Launch Tech is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Launch Tech's P/E?

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.

Our examination of Launch Tech revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Launch Tech that you need to be mindful of.

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.