Optimistic Investors Push Q & M Dental Group (Singapore) Limited (SGX:QC7) Shares Up 31% But Growth Is Lacking

Q & M Dental Group (Singapore) Limited (SGX:QC7) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 33%.

Since its price has surged higher, given close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 11x, you may consider Q & M Dental Group (Singapore) as a stock to avoid entirely with its 20.7x 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.

We've discovered 2 warning signs about Q & M Dental Group (Singapore). View them for free.

Recent times have been advantageous for Q & M Dental Group (Singapore) as its earnings have been rising faster than most other companies. 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.

See our latest analysis for Q & M Dental Group (Singapore)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Q & M Dental Group (Singapore).

Does Growth Match The High P/E?

Q & M Dental Group (Singapore)'s P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 27% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 52% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 7.1% per annum as estimated by the four analysts watching the company. That's shaping up to be similar to the 8.6% per year growth forecast for the broader market.

With this information, we find it interesting that Q & M Dental Group (Singapore) is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

The strong share price surge has got Q & M Dental Group (Singapore)'s P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Q & M Dental Group (Singapore)'s analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Q & M Dental Group (Singapore) that we have uncovered.

If these risks are making you reconsider your opinion on Q & M Dental Group (Singapore), 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.