Earnings Tell The Story For Shihlin Electric & Engineering Corp. (TWSE:1503) As Its Stock Soars 67%

Shihlin Electric & Engineering Corp. (TWSE:1503) shares have continued their recent momentum with a 67% gain in the last month alone. The last month tops off a massive increase of 230% in the last year.

Following the firm bounce in price, Shihlin Electric & Engineering's price-to-earnings (or "P/E") ratio of 67.4x might make it look like a strong sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 23x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Shihlin Electric & Engineering as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Shihlin Electric & Engineering

Want the full picture on analyst estimates for the company? Then our free report on Shihlin Electric & Engineering will help you uncover what's on the horizon.

Is There Enough Growth For Shihlin Electric & Engineering?

The only time you'd be truly comfortable seeing a P/E as steep as Shihlin Electric & Engineering's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. Pleasingly, EPS has also lifted 54% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 70% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's understandable that Shihlin Electric & Engineering's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Shihlin Electric & Engineering's P/E

Shihlin Electric & Engineering's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Shihlin Electric & Engineering's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Shihlin Electric & Engineering you should be aware of.

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.