Little Excitement Around Taiwan Environment Scientific Co., Ltd.'s (TWSE:8476) Earnings As Shares Take 46% Pounding

Taiwan Environment Scientific Co., Ltd. (TWSE:8476) shareholders that were waiting for something to happen have been dealt a blow with a 46% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

After such a large drop in price, Taiwan Environment Scientific may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.1x, since almost half of all companies in Taiwan have P/E ratios greater than 22x and even P/E's higher than 39x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

For example, consider that Taiwan Environment Scientific's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Taiwan Environment Scientific

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Taiwan Environment Scientific's earnings, revenue and cash flow.

How Is Taiwan Environment Scientific's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Taiwan Environment Scientific's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Taiwan Environment Scientific's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Taiwan Environment Scientific's P/E?

Having almost fallen off a cliff, Taiwan Environment Scientific's share price has pulled its P/E way down as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Taiwan Environment Scientific maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with Taiwan Environment Scientific.

Of course, you might also be able to find a better stock than Taiwan Environment Scientific. 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.