Hold-Key Electric Wire & Cable Co., Ltd (TWSE:1618) Held Back By Insufficient Growth Even After Shares Climb 26%

Hold-Key Electric Wire & Cable Co., Ltd (TWSE:1618) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 121% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Hold-Key Electric Wire & Cable's price-to-earnings (or "P/E") ratio of 19.7x 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 24x and even P/E's above 41x 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 limited.

With earnings growth that's exceedingly strong of late, Hold-Key Electric Wire & Cable has been doing very well. 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.

View our latest analysis for Hold-Key Electric Wire & Cable

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hold-Key Electric Wire & Cable will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Hold-Key Electric Wire & Cable's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 56% last year. The strong recent performance means it was also able to grow EPS by 60% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Hold-Key Electric Wire & Cable is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Hold-Key Electric Wire & Cable's P/E

The latest share price surge wasn't enough to lift Hold-Key Electric Wire & Cable's P/E close to the market median. 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 Hold-Key Electric Wire & Cable maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Hold-Key Electric Wire & Cable that you need to be mindful of.

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.