Man Yue Technology Holdings Limited's (HKG:894) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in Hong Kong have price-to-earnings ratios (or "P/E's") below 11x, you may consider Man Yue Technology Holdings Limited (HKG:894) as a stock to avoid entirely with its 25.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's exceedingly strong of late, Man Yue Technology Holdings has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Man Yue Technology Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Man Yue Technology Holdings will help you shine a light on its historical performance.

How Is Man Yue Technology Holdings' Growth Trending?

In order to justify its P/E ratio, Man Yue Technology Holdings would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 92% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 90% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Man Yue Technology Holdings is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Man Yue Technology Holdings revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 4 warning signs for Man Yue Technology Holdings you should be aware of, and 2 of them make us uncomfortable.

If these risks are making you reconsider your opinion on Man Yue Technology Holdings, 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.