Sundy Service Group Co. Ltd (HKG:9608) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 66%.
Since its price has surged higher, Sundy Service Group's price-to-earnings (or "P/E") ratio of 66.2x 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 9x and even P/E's below 5x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
For instance, Sundy Service Group's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.
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 Sundy Service Group's earnings, revenue and cash flow.
How Is Sundy Service Group's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as Sundy Service Group's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered a frustrating 72% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 82% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's an unpleasant look.
In light of this, it's alarming that Sundy Service Group's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Bottom Line On Sundy Service Group's P/E
The strong share price surge has got Sundy Service Group'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 Sundy Service Group 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. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Plus, you should also learn about these 5 warning signs we've spotted with Sundy Service Group (including 2 which don't sit too well with us).
Of course, you might also be able to find a better stock than Sundy Service Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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股价的强劲上涨也使Sundy Service Group的市盈率飙升至很高的高度。仅使用市盈率来确定是否应该出售股票是不明智的,但它可以作为公司未来前景的实用指南。
我们对Sundy Service Group的审查显示,鉴于市场即将增长,其中期收益萎缩对其高市盈率的影响没有我们预期的那么大。当我们看到收益倒退且表现低于市场预期时,我们怀疑股价有下跌的风险,导致高市盈率走低。如果最近的中期收益趋势继续下去,这将使股东的投资面临重大风险,潜在投资者面临支付过高溢价的危险。
另外,你还应该了解我们在Sundy Service Group发现的这5个警告信号(包括两个不太适合我们的警告)。