Kingfa Science & Technology (India) Limited (NSE:KINGFA) Looks Just Right With A 27% Price Jump

Explore Kingfa Science & Technology (India)'s Fair Values from the Community and select yours

Despite an already strong run, Kingfa Science & Technology (India) Limited (NSE:KINGFA) shares have been powering on, with a gain of 27% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

After such a large jump in price, Kingfa Science & Technology (India)'s price-to-earnings (or "P/E") ratio of 33.8x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 27x and even P/E's below 15x 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 as high as it is.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Kingfa Science & Technology (India) has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Kingfa Science & Technology (India)

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kingfa Science & Technology (India)'s earnings, revenue and cash flow.

Is There Enough Growth For Kingfa Science & Technology (India)?

There's an inherent assumption that a company should outperform the market for P/E ratios like Kingfa Science & Technology (India)'s to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow EPS by 618% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Kingfa Science & Technology (India)'s P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Kingfa Science & Technology (India) shares have received a push in the right direction, but its P/E is elevated too. 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 Kingfa Science & Technology (India) maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Kingfa Science & Technology (India) with six simple checks.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.