Some Shareholders Feeling Restless Over Feng Tay Enterprises Co., Ltd.'s (TWSE:9910) P/E Ratio

With a price-to-earnings (or "P/E") ratio of 23.2x Feng Tay Enterprises Co., Ltd. (TWSE:9910) may be sending bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 20x and even P/E's lower than 14x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's inferior to most other companies of late, Feng Tay Enterprises has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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Is There Enough Growth For Feng Tay Enterprises?

There's an inherent assumption that a company should outperform the market for P/E ratios like Feng Tay Enterprises' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.3% last year. The latest three year period has also seen an excellent 36% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 18% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 25% growth forecast for the broader market.

With this information, we find it concerning that Feng Tay Enterprises is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Feng Tay Enterprises' P/E

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.

We've established that Feng Tay Enterprises currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Feng Tay Enterprises that you need to take into consideration.

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.