Investors Still Aren't Entirely Convinced By Lungteh Shipbuilding Co., Ltd.'s (TWSE:6753) Earnings Despite 28% Price Jump

Lungteh Shipbuilding Co., Ltd. (TWSE:6753) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking further back, the 18% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, given about half the companies in Taiwan have price-to-earnings ratios (or "P/E's") above 23x, you may still consider Lungteh Shipbuilding as an attractive investment with its 19.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Lungteh Shipbuilding as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Lungteh Shipbuilding

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

Is There Any Growth For Lungteh Shipbuilding?

The only time you'd be truly comfortable seeing a P/E as low as Lungteh Shipbuilding's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 85% gain to the company's bottom line. Pleasingly, EPS has also lifted 225% in aggregate from three years ago, 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.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Lungteh Shipbuilding's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Lungteh Shipbuilding's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Lungteh Shipbuilding currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Lungteh Shipbuilding that you should be aware of.

You might be able to find a better investment than Lungteh Shipbuilding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.