Tai Hing Group Holdings Limited (HKG:6811) Looks Just Right With A 28% Price Jump

Despite an already strong run, Tai Hing Group Holdings Limited (HKG:6811) shares have been powering on, with a gain of 28% in the last thirty days. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, Tai Hing Group Holdings' price-to-earnings (or "P/E") ratio of 15.6x 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Tai Hing Group Holdings as its earnings have been rising faster than most other companies. 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.

Check out our latest analysis for Tai Hing Group Holdings

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

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.4% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 59% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 31% per year as estimated by the sole analyst watching the company. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Tai Hing Group Holdings' 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.

What We Can Learn From Tai Hing Group Holdings' P/E?

Tai Hing Group Holdings' P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Tai Hing Group Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Tai Hing Group Holdings.

You might be able to find a better investment than Tai Hing Group 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.