Earnings Tell The Story For Chung-Hsin Electric and Machinery Manufacturing Corp. (TWSE:1513) As Its Stock Soars 28%

Chung-Hsin Electric and Machinery Manufacturing Corp. (TWSE:1513) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

After such a large jump in price, Chung-Hsin Electric and Machinery Manufacturing's price-to-earnings (or "P/E") ratio of 62.8x 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 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Chung-Hsin Electric and Machinery Manufacturing has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Chung-Hsin Electric and Machinery Manufacturing

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chung-Hsin Electric and Machinery Manufacturing.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chung-Hsin Electric and Machinery Manufacturing's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 22% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 144% during the coming year according to the five analysts following the company. With the market only predicted to deliver 24%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Chung-Hsin Electric and Machinery Manufacturing'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 Key Takeaway

Chung-Hsin Electric and Machinery Manufacturing's P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Chung-Hsin Electric and Machinery Manufacturing'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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Chung-Hsin Electric and Machinery Manufacturing you should know about.

Of course, you might also be able to find a better stock than Chung-Hsin Electric and Machinery Manufacturing. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com