The Market Lifts Lungteh Shipbuilding Co., Ltd. (TWSE:6753) Shares 29% But It Can Do More

The Lungteh Shipbuilding Co., Ltd. (TWSE:6753) share price has done very well over the last month, posting an excellent gain of 29%. Looking back a bit further, it's encouraging to see the stock is up 44% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Lungteh Shipbuilding's price-to-earnings (or "P/E") ratio of 24x right now seems quite "middle-of-the-road" compared to the market in Taiwan, where the median P/E ratio is around 23x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's exceedingly strong of late, Lungteh Shipbuilding has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View 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 Some Growth For Lungteh Shipbuilding?

There's an inherent assumption that a company should be matching the market for P/E ratios like Lungteh Shipbuilding's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 67%. The latest three year period has also seen an excellent 241% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Lungteh Shipbuilding is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Lungteh Shipbuilding's P/E

Its shares have lifted substantially and now Lungteh Shipbuilding's P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Lungteh Shipbuilding revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Lungteh Shipbuilding that you need to be mindful of.

If these risks are making you reconsider your opinion on Lungteh Shipbuilding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com