Investors Appear Satisfied With Johnson Health Tech .Co., Ltd.'s (TWSE:1736) Prospects As Shares Rocket 32%

Johnson Health Tech .Co., Ltd. (TWSE:1736) shares have continued their recent momentum with a 32% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Since its price has surged higher, given close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 23x, you may consider Johnson Health Tech .Co as a stock to avoid entirely with its 39.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Johnson Health Tech .Co certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Johnson Health Tech .Co

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What Are Growth Metrics Telling Us About The High P/E?

Johnson Health Tech .Co's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 65% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 99% over the next year. That's shaping up to be materially higher than the 27% growth forecast for the broader market.

With this information, we can see why Johnson Health Tech .Co is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Johnson Health Tech .Co's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Johnson Health Tech .Co's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Johnson Health Tech .Co has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Johnson Health Tech .Co, 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.