Why Investors Shouldn't Be Surprised By Hwang Chang General Contractor Co., Ltd's (TWSE:2543) 26% Share Price Surge

Hwang Chang General Contractor Co., Ltd (TWSE:2543) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. This latest share price bounce rounds out a remarkable 408% gain over the last twelve months.

Since its price has surged higher, Hwang Chang General Contractor's price-to-earnings (or "P/E") ratio of 25x might make it look like a sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 21x and even P/E's below 14x 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 as high as it is.

Recent times have been quite advantageous for Hwang Chang General Contractor as its earnings have been rising very briskly. 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

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hwang Chang General Contractor will help you shine a light on its historical performance.

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 449% gain to the company's bottom line. The latest three year period has also seen an excellent 2,099% overall rise in EPS, aided by its short-term performance. 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 25% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Hwang Chang General Contractor is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Hwang Chang General Contractor's P/E

The large bounce in Hwang Chang General Contractor's shares has lifted the company's P/E to a fairly high level. 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 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. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Hwang Chang General Contractor (including 1 which is a bit concerning).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.