Some Shareholders Feeling Restless Over Kangji Medical Holdings Limited's (HKG:9997) P/E Ratio

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 9x, you may consider Kangji Medical Holdings Limited (HKG:9997) as a stock to avoid entirely with its 23x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Kangji Medical 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.

Check out our latest analysis for Kangji Medical Holdings

Keen to find out how analysts think Kangji Medical Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Kangji Medical Holdings?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.2% last year. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 20% each year over the next three years. That's shaping up to be similar to the 20% per year growth forecast for the broader market.

With this information, we find it interesting that Kangji Medical Holdings is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Kangji Medical Holdings' 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 Kangji Medical Holdings currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Kangji Medical Holdings that you should be aware of.

Of course, you might also be able to find a better stock than Kangji Medical Holdings. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.