Charoen Pokphand Enterprise (Taiwan) Co., Ltd. (TWSE:1215) Looks Inexpensive But Perhaps Not Attractive Enough

When close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") above 21x, you may consider Charoen Pokphand Enterprise (Taiwan) Co., Ltd. (TWSE:1215) as an attractive investment with its 14.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Charoen Pokphand Enterprise (Taiwan) over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Charoen Pokphand Enterprise (Taiwan)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Charoen Pokphand Enterprise (Taiwan) will help you shine a light on its historical performance.

How Is Charoen Pokphand Enterprise (Taiwan)'s Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Charoen Pokphand Enterprise (Taiwan)'s to be considered reasonable.

Retrospectively, the last year delivered a frustrating 8.8% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 25% 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.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Charoen Pokphand Enterprise (Taiwan) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Charoen Pokphand Enterprise (Taiwan) maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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 the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Charoen Pokphand Enterprise (Taiwan) (1 doesn't sit too well with us) you should be aware of.

You might be able to find a better investment than Charoen Pokphand Enterprise (Taiwan). 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.