JF SmartInvest Holdings Ltd (HKG:9636) Looks Just Right With A 35% Price Jump

Despite an already strong run, JF SmartInvest Holdings Ltd (HKG:9636) shares have been powering on, with a gain of 35% in the last thirty days. The annual gain comes to 242% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, JF SmartInvest Holdings' price-to-earnings (or "P/E") ratio of 64.6x 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 10x and even P/E's below 6x 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.

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With earnings growth that's superior to most other companies of late, JF SmartInvest Holdings has been doing relatively well. 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.

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Is There Enough Growth For JF SmartInvest Holdings?

In order to justify its P/E ratio, JF SmartInvest Holdings would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 35% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 6.3% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 331% during the coming year according to the dual analysts following the company. That's shaping up to be materially higher than the 18% growth forecast for the broader market.

With this information, we can see why JF SmartInvest Holdings is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got JF SmartInvest Holdings' P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of JF SmartInvest 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. 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 1 warning sign for JF SmartInvest Holdings that you should be aware of.

If these risks are making you reconsider your opinion on JF SmartInvest Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.