Investors Appear Satisfied With Fosun Tourism Group's (HKG:1992) Prospects As Shares Rocket 29%

The Fosun Tourism Group (HKG:1992) share price has done very well over the last month, posting an excellent gain of 29%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

Following the firm bounce in price, Fosun Tourism Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 32.5x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Fosun Tourism Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Fosun Tourism Group

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

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

The only time you'd be truly comfortable seeing a P/E as steep as Fosun Tourism Group's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 49% each year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 12% each year growth forecast for the broader market.

In light of this, it's understandable that Fosun Tourism 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

Fosun Tourism Group's P/E is flying high just like its stock has during the last month. 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.

We've established that Fosun Tourism Group 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.

You need to take note of risks, for example - Fosun Tourism Group has 2 warning signs (and 1 which is concerning) we think you should know about.

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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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.