Market Participants Recognise Hwang Chang General Contractor Co., Ltd's (TWSE:2543) Earnings Pushing Shares 32% Higher

Hwang Chang General Contractor Co., Ltd (TWSE:2543) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days were the cherry on top of the stock's 614% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, given around half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 23x, you may consider Hwang Chang General Contractor as a stock to potentially avoid with its 28.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, Hwang Chang General Contractor has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Hwang Chang General Contractor

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hwang Chang General Contractor's earnings, revenue and cash flow.

Is There Enough Growth For Hwang Chang General Contractor?

The only time you'd be truly comfortable seeing a P/E as high as Hwang Chang General Contractor's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 135% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 1,602% 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 24% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Hwang Chang General Contractor's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Hwang Chang General Contractor's P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Hwang Chang General Contractor maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Hwang Chang General Contractor (1 can't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Hwang Chang General Contractor's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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