L.K. Technology Holdings Limited (HKG:558) Stock Rockets 27% But Many Are Still Ignoring The Company

L.K. Technology Holdings Limited (HKG:558) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 50% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about L.K. Technology Holdings' P/E ratio of 11.3x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 9x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

L.K. Technology Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for L.K. Technology Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on L.K. Technology Holdings.

How Is L.K. Technology Holdings' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like L.K. Technology Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 345% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 22% per year over the next three years. With the market only predicted to deliver 16% each year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that L.K. Technology Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On L.K. Technology Holdings' P/E

Its shares have lifted substantially and now L.K. Technology Holdings' P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of L.K. Technology Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for L.K. Technology Holdings with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

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.