Kimou Environmental Holding Limited's (HKG:6805) 38% Jump Shows Its Popularity With Investors

Kimou Environmental Holding Limited (HKG:6805) shareholders have had their patience rewarded with a 38% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 50%.

Since its price has surged higher, Kimou Environmental Holding may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.1x, since almost half of all companies in Hong Kong have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 2 warning signs investors should be aware of before investing in Kimou Environmental Holding. Read for free now.

Recent times have been quite advantageous for Kimou Environmental Holding as its earnings have been rising very briskly. 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.

Check out our latest analysis for Kimou Environmental Holding

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kimou Environmental Holding's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 35%. The strong recent performance means it was also able to grow EPS by 122% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

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.

In light of this, it's understandable that Kimou Environmental Holding's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Kimou Environmental Holding shares have received a push in the right direction, but its P/E is elevated too. 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.

We've established that Kimou Environmental Holding maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Kimou Environmental Holding (1 is potentially serious!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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