Alexander Marine Co., Ltd.'s (TWSE:8478) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Alexander Marine Co., Ltd. (TWSE:8478) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 8.5% isn't as impressive.

Even after such a large jump in price, Alexander Marine may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18x, since almost half of all companies in Taiwan have P/E ratios greater than 23x and even P/E's higher than 39x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Alexander Marine 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 might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

The only time you'd be truly comfortable seeing a P/E as low as Alexander Marine's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. Pleasingly, EPS has also lifted 2,168% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 6.2% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 22% growth forecast for the broader market.

In light of this, it's understandable that Alexander Marine's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Alexander Marine's P/E

Alexander Marine's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Alexander Marine maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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 these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Alexander Marine is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.