Investors Still Aren't Entirely Convinced By LongDa Construction & Development Corporation's (TWSE:5519) Earnings Despite 25% Price Jump

LongDa Construction & Development Corporation (TWSE:5519) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, LongDa Construction & Development's price-to-earnings (or "P/E") ratio of 11.3x might still make it look like a strong buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 23x and even P/E's above 41x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

LongDa Construction & Development has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for LongDa Construction & Development

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on LongDa Construction & Development will help you shine a light on its historical performance.

Is There Any Growth For LongDa Construction & Development?

There's an inherent assumption that a company should far underperform the market for P/E ratios like LongDa Construction & Development's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. This was backed up an excellent period prior to see EPS up by 133% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 23% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that LongDa Construction & Development is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On LongDa Construction & Development's P/E

Shares in LongDa Construction & Development are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of LongDa Construction & Development revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for LongDa Construction & Development you should be aware of.

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.