The Price Is Right For Shin Zu Shing Co., Ltd. (TWSE:3376) Even After Diving 27%

Shin Zu Shing Co., Ltd. (TWSE:3376) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Looking at the bigger picture, even after this poor month the stock is up 72% in the last year.

In spite of the heavy fall in price, Shin Zu Shing may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 35.2x, since almost half of all companies in Taiwan have P/E ratios under 22x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Shin Zu Shing has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Shin Zu Shing

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

Is There Enough Growth For Shin Zu Shing?

The only time you'd be truly comfortable seeing a P/E as steep as Shin Zu Shing's is when the company's growth is on track to outshine the market decidedly.

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 50%. The last three years don't look nice either as the company has shrunk EPS by 52% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 48% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 26% growth forecast for the broader market.

With this information, we can see why Shin Zu Shing 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.

What We Can Learn From Shin Zu Shing's P/E?

A significant share price dive has done very little to deflate Shin Zu Shing's very lofty P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Shin Zu Shing 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.

You need to take note of risks, for example - Shin Zu Shing has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Of course, you might also be able to find a better stock than Shin Zu Shing. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.