Yuanta Financial Holding Co., Ltd.'s (TWSE:2885) Price Is Right But Growth Is Lacking

When close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") above 22x, you may consider Yuanta Financial Holding Co., Ltd. (TWSE:2885) as an attractive investment with its 13.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Yuanta Financial Holding has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. It might be that many expect the comparatively superior earnings performance to degrade substantially, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. But at the very least, you'd be hoping that earnings don't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Yuanta Financial Holding

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

How Is Yuanta Financial Holding's Growth Trending?

Yuanta Financial Holding's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 9.3% during the coming year according to the four analysts following the company. With the market predicted to deliver 22% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Yuanta Financial Holding'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.

What We Can Learn From Yuanta Financial Holding's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Yuanta Financial Holding maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Yuanta Financial Holding you should be aware of, and 1 of them is potentially serious.

If you're unsure about the strength of Yuanta Financial Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.