Market Participants Recognise Universal Vision Biotechnology Co., Ltd.'s (GTSM:3218) Earnings

When close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 18x, you may consider Universal Vision Biotechnology Co., Ltd. (GTSM:3218) as a stock to avoid entirely with its 65.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Universal Vision Biotechnology has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Universal Vision Biotechnology

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How Is Universal Vision Biotechnology's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Universal Vision Biotechnology's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 51% gain to the company's bottom line. Pleasingly, EPS has also lifted 183% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 44% per annum over the next three years. With the market only predicted to deliver 8.8% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Universal Vision Biotechnology is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Universal Vision Biotechnology's 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.

As we suspected, our examination of Universal Vision Biotechnology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Universal Vision Biotechnology you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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This article by Simply Wall St is general in nature. 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.
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