Giant Manufacturing Co., Ltd.'s (TWSE:9921) P/E Still Appears To Be Reasonable

There wouldn't be many who think Giant Manufacturing Co., Ltd.'s (TWSE:9921) price-to-earnings (or "P/E") ratio of 24.9x is worth a mention when the median P/E in Taiwan is similar at about 23x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Giant Manufacturing has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Giant Manufacturing

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Giant Manufacturing.

Is There Some Growth For Giant Manufacturing?

There's an inherent assumption that a company should be matching the market for P/E ratios like Giant Manufacturing's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 34% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 15% each year over the next three years. With the market predicted to deliver 16% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Giant Manufacturing's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

As we suspected, our examination of Giant Manufacturing's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Giant Manufacturing you should know about.

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.