IS PE of 40 rational for junior stocks?

Honey Bun shot up by more than 500% in 2016 shortly after stock split.

Rabid speculation, seems to have hit the Jamaican stock market, with investors appearing to be just following the leader rather than making rational investment decisions. Well that is how it appears with the high valuation placed on some stocks in the local market.
Yes, interest rates are at their lowest levels in decades, the Jamaican dollar hit rock bottom and bounced and business confidence as measured by the stock market, is at an all-time high. Even then there is little rationale for Cargo Handlers to be selling at a PE of 38 based on estimated 2017 earnings and worse, 51 times 2016 earnings.
IC checked with an officer of the company, to get an understanding as to what was going on with the stock. Are profits running well ahead of 2016, there was no evidence of that, according to the company, operations are running close to that of 2016, was the response. Are there expansion plans on the table? The answer was there are no such plans in the works. Well, it could be the fact that the economy of Montego Bay where the company operates, is said to be growing at 7 percent per annum, be a factor. Some persons think it may be the dividend yield, but that makes no sense whatsoever as the yield would be a mere 2 percent, at the present stock price if all profit of 41 cents per share for 2016 were paid out. The only answer, the stock appears cheap to many, in dollar terms with the 10 to 1 stock split that took place in late 2016 and supply continues to be relatively low.
The stock is selling well in excess of the average market and the next highest valued in the junior market, Honey Bun that is at a PE of 21 based on 2016 earnings but a more moderate 14 times projected 2017 earnings.
It not surprising that Cargo Handlers heads the list of most overvalued stocks on both the main and junior market.
The company reported profit climbing 25 percent for their September quarter last year and 31 percent for the full year before taxation and could result in earnings of 55 cents per share for 2017. That would still leave it with an eye popping PE of 38 times current year’s earnings. At this level of PE investors are assuming that profits will be rising around 38 percent per annum for a while and that does not seem rational, if that were the case, then Access Financial should be selling around $137 per share, with earnings seemingly likely to grow around 30-40 percent per annum, for a while.

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