Evergreen Aviation Technologies Corporation's (TWSE:2645) Share Price Could Signal Some Risk

There wouldn't be many who think Evergreen Aviation Technologies Corporation's (TWSE:2645) price-to-earnings (or "P/E") ratio of 19.8x is worth a mention when the median P/E in Taiwan is similar at about 21x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

There hasn't been much to differentiate Evergreen Aviation Technologies' and the market's earnings growth lately. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

See our latest analysis for Evergreen Aviation Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Evergreen Aviation Technologies.

Does Growth Match The P/E?

In order to justify its P/E ratio, Evergreen Aviation Technologies would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 7.9% gain to the company's bottom line. Pleasingly, EPS has also lifted 225% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 7.0% over the next year. That's shaping up to be materially lower than the 24% growth forecast for the broader market.

In light of this, it's curious that Evergreen Aviation Technologies' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Evergreen Aviation Technologies' P/E

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 Evergreen Aviation Technologies currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Evergreen Aviation Technologies you should be aware 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.