FIT Hon Teng Limited (HKG:6088) Looks Just Right With A 26% Price Jump

Despite an already strong run, FIT Hon Teng Limited (HKG:6088) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 170% in the last year.

Following the firm bounce in price, FIT Hon Teng may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 17x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, FIT Hon Teng 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.

See our latest analysis for FIT Hon Teng

If you'd like to see what analysts are forecasting going forward, you should check out our free report on FIT Hon Teng.

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

In order to justify its P/E ratio, FIT Hon Teng would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 125% gain to the company's bottom line. The latest three year period has also seen an excellent 443% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the five analysts watching the company. With the market only predicted to deliver 12% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why FIT Hon Teng 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 Bottom Line On FIT Hon Teng's P/E

FIT Hon Teng'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.

As we suspected, our examination of FIT Hon Teng'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.

Having said that, be aware FIT Hon Teng is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.