Taiwan Fertilizer Co., Ltd. (TWSE:1722) Might Not Be As Mispriced As It Looks

When close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") above 24x, you may consider Taiwan Fertilizer Co., Ltd. (TWSE:1722) as an attractive investment with its 17x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's exceedingly strong of late, Taiwan Fertilizer has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform 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.

View our latest analysis for Taiwan Fertilizer

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

Is There Any Growth For Taiwan Fertilizer?

The only time you'd be truly comfortable seeing a P/E as low as Taiwan Fertilizer's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. Pleasingly, EPS has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's about the same on an annualised basis.

With this information, we find it odd that Taiwan Fertilizer is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

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.

Our examination of Taiwan Fertilizer revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Taiwan Fertilizer with six simple checks.

Of course, you might also be able to find a better stock than Taiwan Fertilizer. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

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