Investors Don't See Light At End Of Swancor Holding Co., LTD.'s (TWSE:3708) Tunnel And Push Stock Down 27%

Swancor Holding Co., LTD. (TWSE:3708) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 25%.

In spite of the heavy fall in price, Swancor Holding's price-to-earnings (or "P/E") ratio of 8.6x might still make it look like a strong buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 23x and even P/E's above 40x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Swancor Holding certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Swancor Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Swancor Holding.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Swancor Holding's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 50% gain to the company's bottom line. The latest three year period has also seen an excellent 88% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 73% during the coming year according to the dual analysts following the company. That's not great when the rest of the market is expected to grow by 23%.

In light of this, it's understandable that Swancor Holding's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Swancor Holding's P/E?

Shares in Swancor Holding have plummeted and its P/E is now low enough to touch the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Swancor Holding maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with Swancor Holding (including 1 which can't be ignored).

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.

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

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