Despite an already strong run, SY Holdings Group Limited (HKG:6069) shares have been powering on, with a gain of 55% in the last thirty days. The last month tops off a massive increase of 201% in the last year.
Since its price has surged higher, SY Holdings Group's price-to-earnings (or "P/E") ratio of 30.9x 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 10x and even P/E's below 6x 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.
Recent times have been advantageous for SY Holdings Group 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.
Check out our latest analysis for SY Holdings Group
How Is SY Holdings Group's Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like SY Holdings Group's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 43%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 11% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Looking ahead now, EPS is anticipated to climb by 36% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 19%, which is noticeably less attractive.
With this information, we can see why SY Holdings Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
Shares in SY Holdings Group have built up some good momentum lately, which has really inflated its P/E. 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.
We've established that SY Holdings Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
It is also worth noting that we have found 1 warning sign for SY Holdings Group that you need to take into consideration.
Of course, you might also be able to find a better stock than SY Holdings 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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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.