What You Can Learn From Hiwin Technologies Corporation's (TWSE:2049) P/E

With a price-to-earnings (or "P/E") ratio of 36.9x Hiwin Technologies Corporation (TWSE:2049) may be sending very bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 21x and even P/E's lower than 14x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Hiwin Technologies could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Hiwin Technologies

Keen to find out how analysts think Hiwin Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Hiwin Technologies' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Hiwin Technologies' to be considered reasonable.

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 35%. This means it has also seen a slide in earnings over the longer-term as EPS is down 40% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 13% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Hiwin Technologies is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

We've established that Hiwin Technologies maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Hiwin Technologies with six simple checks on some of these key factors.

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.