Optimistic Investors Push 361 Degrees International Limited (HKG:1361) Shares Up 26% But Growth Is Lacking

Explore 361 Degrees International's Fair Values from the Community and select yours

Despite an already strong run, 361 Degrees International Limited (HKG:1361) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 99%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about 361 Degrees International's P/E ratio of 10.7x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent times have been advantageous for 361 Degrees International as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for 361 Degrees International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 361 Degrees International.

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

The only time you'd be comfortable seeing a P/E like 361 Degrees International's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. Pleasingly, EPS has also lifted 91% 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.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.

With this information, we find it interesting that 361 Degrees International is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On 361 Degrees International's P/E

361 Degrees International's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of 361 Degrees International's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - 361 Degrees International has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you're unsure about the strength of 361 Degrees International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.