Despite an already strong run, Precious Dragon Technology Holdings Limited (HKG:1861) shares have been powering on, with a gain of 28% in the last thirty days. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about Precious Dragon Technology Holdings' P/E ratio of 8.6x, since the median price-to-earnings (or "P/E") ratio in Hong Kong is also close to 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
With earnings growth that's exceedingly strong of late, Precious Dragon Technology Holdings has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
SEHK:1861 Price to Earnings Ratio vs Industry February 29th 2024 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 Precious Dragon Technology Holdings' earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The P/E?
The only time you'd be comfortable seeing a P/E like Precious Dragon Technology Holdings' is when the company's growth is tracking the market closely.
Retrospectively, the last year delivered an exceptional 130% gain to the company's bottom line. The latest three year period has also seen a 12% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
With this information, we find it interesting that Precious Dragon Technology Holdings is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Final Word
Precious Dragon Technology Holdings' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
Our examination of Precious Dragon Technology Holdings revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
Plus, you should also learn about these 3 warning signs we've spotted with Precious Dragon Technology Holdings (including 2 which are a bit concerning).
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.
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