Stock Analysis

Market Participants Recognise Inspur Digital Enterprise Technology Limited's (HKG:596) Earnings Pushing Shares 28% Higher

SEHK:596
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Inspur Digital Enterprise Technology Limited (HKG:596) shareholders have had their patience rewarded with a 28% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

Following the firm bounce in price, given close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 8x, you may consider Inspur Digital Enterprise Technology as a stock to avoid entirely with its 19x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Inspur Digital Enterprise Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Inspur Digital Enterprise Technology

pe-multiple-vs-industry
SEHK:596 Price to Earnings Ratio vs Industry March 11th 2024
Want the full picture on analyst estimates for the company? Then our free report on Inspur Digital Enterprise Technology will help you uncover what's on the horizon.

Is There Enough Growth For Inspur Digital Enterprise Technology?

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

If we review the last year of earnings growth, the company posted a terrific increase of 113%. The strong recent performance means it was also able to grow EPS by 276% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 47% each year during the coming three years according to the sole analyst following the company. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

With this information, we can see why Inspur Digital Enterprise Technology is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Inspur Digital Enterprise Technology have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Inspur Digital Enterprise Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Inspur Digital Enterprise Technology (1 is a bit concerning!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Valuation is complex, but we're helping make it simple.

Find out whether Inspur Digital Enterprise Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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.