Formosa Oilseed Processing Co., Ltd.'s (TWSE:1225) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Unfortunately for some shareholders, the Formosa Oilseed Processing Co., Ltd. (TWSE:1225) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Formosa Oilseed Processing's P/E ratio of 20.8x, since the median price-to-earnings (or "P/E") ratio in Taiwan is also close to 21x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Formosa Oilseed Processing as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Formosa Oilseed Processing

Although there are no analyst estimates available for Formosa Oilseed Processing, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Formosa Oilseed Processing's Growth Trending?

Formosa Oilseed Processing's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. Still, incredibly EPS has fallen 14% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's an unpleasant look.

With this information, we find it concerning that Formosa Oilseed Processing is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Formosa Oilseed Processing's P/E

Formosa Oilseed Processing's plummeting stock price has brought its P/E right back to the rest of the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Formosa Oilseed Processing revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 4 warning signs for Formosa Oilseed Processing (3 are concerning!) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.