Market Participants Recognise Pop Mart International Group Limited's (HKG:9992) Earnings Pushing Shares 27% Higher

Despite an already strong run, Pop Mart International Group Limited (HKG:9992) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 233% in the last year.

Since its price has surged higher, Pop Mart International Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 60.6x, since almost half of all companies in Hong Kong have P/E ratios under 9x and even P/E's lower than 5x are not unusual. 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.

With earnings growth that's superior to most other companies of late, Pop Mart International Group has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Pop Mart International Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pop Mart International Group.

Does Growth Match The High P/E?

Pop Mart International Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 150% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 103% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 39% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

In light of this, it's understandable that Pop Mart International Group's 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 Pop Mart International Group's P/E?

Shares in Pop Mart International Group have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that Pop Mart International Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Pop Mart International Group you should know about.

Of course, you might also be able to find a better stock than Pop Mart International Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.