To The Moon

Leoch International Technology Limited (HKG:842) Stock Rockets 57% But Many Are Still Ignoring The Company

Simply Wall S

Leoch International Technology Limited (HKG:842) shareholders would be excited to see that the share price has had a great month, posting a 57% gain and recovering from prior weakness. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Even after such a large jump in price, Leoch International Technology may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.2x, since almost half of all companies in Hong Kong have P/E ratios greater than 9x and even P/E's higher than 19x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Leoch International Technology certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Leoch International Technology

peSEHK:842 Price Based on Past Earnings November 16th 2022 If you'd like to see what analysts are forecasting going forward, you should check out our free report on Leoch International Technology.

What Are Growth Metrics Telling Us About The Low P/E?

Leoch International Technology's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. The strong recent performance means it was also able to grow EPS by 51% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the one analyst watching the company. That's shaping up to be similar to the 14% per annum growth forecast for the broader market.

In light of this, it's peculiar that Leoch International Technology's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Leoch International Technology's P/E

Leoch International Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Leoch International Technology's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - Leoch International Technology has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Leoch International Technology. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.