After Leaping 27% Tong Yang Industry Co., Ltd. (TWSE:1319) Shares Are Not Flying Under The Radar

Tong Yang Industry Co., Ltd. (TWSE:1319) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last month tops off a massive increase of 147% in the last year.

After such a large jump in price, Tong Yang Industry's price-to-earnings (or "P/E") ratio of 24.9x might make it look like a sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 22x and even P/E's below 15x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Tong Yang Industry 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. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Tong Yang Industry

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tong Yang Industry.

How Is Tong Yang Industry's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Tong Yang Industry's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. Pleasingly, EPS has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 38% during the coming year according to the six analysts following the company. With the market only predicted to deliver 22%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Tong Yang Industry's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Tong Yang Industry's P/E?

The large bounce in Tong Yang Industry's shares has lifted the company's P/E to a fairly high level. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tong Yang Industry maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Tong Yang Industry.

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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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.