All Cosmos Bio-Tech Holding Corporation's (TPE:4148) Price Is Out Of Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 50.6x All Cosmos Bio-Tech Holding Corporation (TPE:4148) may be sending very bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 18x and even P/E's lower than 13x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

As an illustration, earnings have deteriorated at All Cosmos Bio-Tech Holding over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for All Cosmos Bio-Tech Holding

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on All Cosmos Bio-Tech Holding's earnings, revenue and cash flow.

Is There Enough Growth For All Cosmos Bio-Tech Holding?

In order to justify its P/E ratio, All Cosmos Bio-Tech Holding would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 23% 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 86% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 24% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that All Cosmos Bio-Tech Holding is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of All Cosmos Bio-Tech Holding revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 3 warning signs for All Cosmos Bio-Tech Holding (1 is concerning!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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