Lai Yih Footwear Co., Ltd. (TWSE:6890) Looks Just Right With A 28% Price Jump

The Lai Yih Footwear Co., Ltd. (TWSE:6890) share price has done very well over the last month, posting an excellent gain of 28%. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, Lai Yih Footwear may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 37.9x, since almost half of all companies in Taiwan have P/E ratios under 20x and even P/E's lower than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Lai Yih Footwear 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.

Check out our latest analysis for Lai Yih Footwear

Want the full picture on analyst estimates for the company? Then our free report on Lai Yih Footwear will help you uncover what's on the horizon.

How Is Lai Yih Footwear's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Lai Yih Footwear's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 264%. The latest three year period has also seen an excellent 1,185% 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.

Turning to the outlook, the next year should generate growth of 33% as estimated by the six analysts watching the company. With the market only predicted to deliver 25%, the company is positioned for a stronger earnings result.

With this information, we can see why Lai Yih Footwear 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.

What We Can Learn From Lai Yih Footwear's P/E?

Lai Yih Footwear's P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Lai Yih Footwear maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Lai Yih Footwear that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.