Market Participants Recognise Sun.King Technology Group Limited's (HKG:580) Earnings Pushing Shares 25% Higher

Sun.King Technology Group Limited (HKG:580) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 118% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Sun.King Technology Group's price-to-earnings (or "P/E") ratio of 17.4x might make it look like a sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's superior to most other companies of late, Sun.King Technology Group has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Sun.King Technology Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sun.King Technology Group.

How Is Sun.King Technology Group's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 131% last year. Pleasingly, EPS has also lifted 766% 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.

Looking ahead now, EPS is anticipated to climb by 27% each year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per annum, which is noticeably less attractive.

In light of this, it's understandable that Sun.King Technology Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The large bounce in Sun.King Technology Group's shares has lifted the company's P/E to a fairly high level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Sun.King Technology Group'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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Sun.King Technology Group with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Sun.King Technology Group. 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.