Pinning Down Shiny Chemical Industrial Co., Ltd.'s (TWSE:1773) P/E Is Difficult Right Now

With a median price-to-earnings (or "P/E") ratio of close to 21x in Taiwan, you could be forgiven for feeling indifferent about Shiny Chemical Industrial Co., Ltd.'s (TWSE:1773) P/E ratio of 21.3x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Shiny Chemical Industrial has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Shiny Chemical Industrial

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shiny Chemical Industrial will help you shine a light on its historical performance.

Is There Some Growth For Shiny Chemical Industrial?

In order to justify its P/E ratio, Shiny Chemical Industrial would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 15% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Shiny Chemical Industrial is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Bottom Line On Shiny Chemical Industrial's P/E

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.

We've established that Shiny Chemical Industrial currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Shiny Chemical Industrial you should be aware of.

Of course, you might also be able to find a better stock than Shiny Chemical Industrial. 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.