Investors Appear Satisfied With Q Technology (Group) Company Limited's (HKG:1478) Prospects As Shares Rocket 34%

Explore Q Technology (Group)'s Fair Values from the Community and select yours

Q Technology (Group) Company Limited (HKG:1478) shares have continued their recent momentum with a 34% gain in the last month alone. The annual gain comes to 220% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Q Technology (Group)'s price-to-earnings (or "P/E") ratio of 37.2x 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. 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.

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With earnings growth that's superior to most other companies of late, Q Technology (Group) has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Q Technology (Group) 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 167% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 2.8% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 26% each year over the next three years. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Q Technology (Group) is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Q Technology (Group)'s P/E?

Q Technology (Group)'s P/E is flying high just like its stock has during the last month. 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 Q Technology (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.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Q Technology (Group) with six simple checks.

If these risks are making you reconsider your opinion on Q Technology (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.