Johnson Health Tech .Co., Ltd. (TWSE:1736) Looks Just Right With A 26% Price Jump

Despite an already strong run, Johnson Health Tech .Co., Ltd. (TWSE:1736) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 183% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 21x, you may consider Johnson Health Tech .Co as a stock to avoid entirely with its 45.6x 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 so lofty.

Johnson Health Tech .Co certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Johnson Health Tech .Co

Keen to find out how analysts think Johnson Health Tech .Co's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/E ratio, Johnson Health Tech .Co would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 117% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 2,335% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 106% over the next year. With the market only predicted to deliver 25%, the company is positioned for a stronger earnings result.

With this information, we can see why Johnson Health Tech .Co is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Johnson Health Tech .Co's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Johnson Health Tech .Co that you need to be mindful of.

Of course, you might also be able to find a better stock than Johnson Health Tech .Co. 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.