Why Investors Shouldn't Be Surprised By Giant Biogene Holding Co., Ltd.'s (HKG:2367) 29% Share Price Surge

Despite an already strong run, Giant Biogene Holding Co., Ltd. (HKG:2367) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 51%.

Since its price has surged higher, Giant Biogene Holding's price-to-earnings (or "P/E") ratio of 37.7x 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 2 warning signs investors should be aware of before investing in Giant Biogene Holding. Read for free now.

Giant Biogene Holding 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Giant Biogene Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Giant Biogene Holding.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Giant Biogene Holding would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 41% last year. The strong recent performance means it was also able to grow EPS by 135% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 15% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Giant Biogene Holding's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Giant Biogene Holding's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Giant Biogene Holding 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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Giant Biogene Holding (1 shouldn't be ignored!) that we have uncovered.

You might be able to find a better investment than Giant Biogene Holding. 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.