Goodbaby International Holdings Limited's (HKG:1086) P/E Is Still On The Mark Following 31% Share Price Bounce

Despite an already strong run, Goodbaby International Holdings Limited (HKG:1086) shares have been powering on, with a gain of 31% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Since its price has surged higher, Goodbaby International Holdings' price-to-earnings (or "P/E") ratio of 20x might make it look like a strong sell right now compared to the market in Hong Kong, where around half of the companies have P/E ratios below 9x and even P/E's below 5x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Goodbaby International Holdings has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Goodbaby International Holdings

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

How Is Goodbaby International Holdings' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 181% gain to the company's bottom line. Still, incredibly EPS has fallen 50% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 206% during the coming year according to the only analyst following the company. With the market only predicted to deliver 23%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Goodbaby International Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Goodbaby International Holdings' P/E?

Shares in Goodbaby International Holdings have built up some good momentum lately, which has really inflated its P/E. 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 Goodbaby International Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Goodbaby International Holdings 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 Goodbaby International Holdings. 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.