Optimistic Investors Push Fulgent Sun International (Holding) Co., Ltd. (TWSE:9802) Shares Up 25% But Growth Is Lacking

Fulgent Sun International (Holding) Co., Ltd. (TWSE:9802) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, it's still not a stretch to say that Fulgent Sun International (Holding)'s price-to-earnings (or "P/E") ratio of 19.3x right now seems quite "middle-of-the-road" compared to the market in Taiwan, where the median P/E ratio is around 21x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

As an illustration, earnings have deteriorated at Fulgent Sun International (Holding) over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Fulgent Sun International (Holding)

Although there are no analyst estimates available for Fulgent Sun International (Holding), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Fulgent Sun International (Holding)'s to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.1%. Regardless, EPS has managed to lift by a handy 13% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Comparing that to the market, which is predicted to deliver 25% 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 curious that Fulgent Sun International (Holding)'s P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

Fulgent Sun International (Holding)'s stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Fulgent Sun International (Holding) revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Fulgent Sun International (Holding) that you need to be mindful of.

You might be able to find a better investment than Fulgent Sun International (Holding). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.