Earnings Not Telling The Story For Desun Real Estate Investment Services Group Co., Ltd. (HKG:2270) After Shares Rise 41%

Despite an already strong run, Desun Real Estate Investment Services Group Co., Ltd. (HKG:2270) shares have been powering on, with a gain of 41% in the last thirty days. The last month tops off a massive increase of 103% in the last year.

Since its price has surged higher, Desun Real Estate Investment Services Group's price-to-earnings (or "P/E") ratio of 37.1x 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 12x and even P/E's below 7x 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.

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For instance, Desun Real Estate Investment Services Group's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Desun Real Estate Investment Services Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Desun Real Estate Investment Services Group will help you shine a light on its historical performance.

Is There Enough Growth For Desun Real Estate Investment Services Group?

In order to justify its P/E ratio, Desun Real Estate Investment Services Group would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 18%. As a result, earnings from three years ago have also fallen 33% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's an unpleasant look.

With this information, we find it concerning that Desun Real Estate Investment Services Group is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Desun Real Estate Investment Services Group's P/E?

The strong share price surge has got Desun Real Estate Investment Services Group's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Desun Real Estate Investment Services Group currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Desun Real Estate Investment Services Group (of which 1 shouldn't be ignored!) you should know about.

You might be able to find a better investment than Desun Real Estate Investment Services Group. 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.