Investors appear pleased with Futu Holdings Limited's (NASDAQ:FUTU) prospects as shares skyrocket 67%

Futu Holdings Limited (NASDAQ:FUTU) shares had a truly impressive month, gaining 67% after a shaky period previously. The last 30 days bring the annual increase to a very strong 54%.

Since the price has risen sharply and about half of the companies in the United States have a price-to-earnings ratio (or “P/E”) below 18, you can consider Futu Holdings, with a price-to-earnings ratio of 24.4, as one Stock to consider that you may want to avoid /E ratio. However, it is not advisable to simply take the P/E ratio at face value, as there may be an explanation as to why it is so high.

Futu Holdings has certainly done a good job recently, as its earnings growth has been positive while most other companies' earnings have been declining. The P/E ratio is likely high because investors expect the company to continue to weather broader market headwinds better than most. If not, existing shareholders may be a little nervous about the sustainability of the share price.

Check out our latest analysis for Futu Holdings

Want to find out how analysts think Futu Holdings' future compares to the industry? In this case ours free The report is a good start.

Is there enough growth for Futu Holdings?

A P/E ratio as high as Futu Holdings's can only really be considered comfortable if the company's growth is on track to outperform the market.

If we first look back, we see that the company managed to increase earnings per share by a remarkable 6.4% last year. The most recent three-year period also saw an excellent overall EPS increase of 63%, helped in part by near-term performance. So, first of all, we can confirm that the company has done an excellent job of growing profits during this time.

According to analysts covering the company, earnings per share are expected to grow 21% per year over the next three years. With the market expected to deliver only 10% per year, the company is positioned for a better outcome.

With this in mind, it's understandable that Futu Holdings' P/E ratio is higher than most other companies. Apparently shareholders aren't interested in selling off something that might be aimed at a more prosperous future.

The key takeaway

Futu Holdings shares have seen a boost in the right direction, but its P/E ratio has also increased. We typically caution against reading too much into the price-to-earnings ratio when making investment decisions, even though it can reveal a lot about what other market participants think about the company.

As we suspected, our review of Futu Holdings' analyst forecasts found that its improving earnings outlook is contributing to its high P/E ratio. Currently, shareholders are happy with the P/E ratio as they are fairly confident that future earnings are not at risk. Unless these conditions change, they will continue to provide strong support for the share price.

Before you decide on an opinion, we found out 1 warning sign for Futu Holdings what you should be aware of.

If yes uncertain about the strength of Futu Holdings' businessExplore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.