Further Upside For GLOBAL TEK FABRICATION CO., Ltd. (TWSE:4566) Shares Could Introduce Price Risks After 27% Bounce

GLOBAL TEK FABRICATION CO., Ltd. (TWSE:4566) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Even after such a large jump in price, GLOBAL TEK FABRICATION's price-to-earnings (or "P/E") ratio of 17.3x might still make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 23x and even P/E's above 41x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For instance, GLOBAL TEK FABRICATION's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for GLOBAL TEK FABRICATION

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on GLOBAL TEK FABRICATION's earnings, revenue and cash flow.

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

The only time you'd be truly comfortable seeing a P/E as low as GLOBAL TEK FABRICATION's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 21%. Even so, admirably EPS has lifted 154% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that GLOBAL TEK FABRICATION's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On GLOBAL TEK FABRICATION's P/E

GLOBAL TEK FABRICATION'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 GLOBAL TEK FABRICATION revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with GLOBAL TEK FABRICATION.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.