Insufficient Growth At Hua Eng Wire & Cable Co., Ltd. (TPE:1608) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 12.7x Hua Eng Wire & Cable Co., Ltd. (TPE:1608) may be sending bullish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Hua Eng Wire & Cable certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Hua Eng Wire & Cable

Although there are no analyst estimates available for Hua Eng Wire & Cable, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Hua Eng Wire & Cable would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 281% last year. As a result, it also grew EPS by 16% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Hua Eng Wire & Cable's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Hua Eng Wire & Cable revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Hua Eng Wire & Cable.

Of course, you might also be able to find a better stock than Hua Eng Wire & Cable. 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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