Investors Continue Waiting On Sidelines For Lotus Pharmaceutical Co., Ltd. (TWSE:1795)

When close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") above 24x, you may consider Lotus Pharmaceutical Co., Ltd. (TWSE:1795) as an attractive investment with its 19.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Lotus Pharmaceutical as its earnings have risen in spite of the market's earnings going into reverse. 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.

See our latest analysis for Lotus Pharmaceutical

Keen to find out how analysts think Lotus Pharmaceutical's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Lotus Pharmaceutical's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 4.5%. Pleasingly, EPS has also lifted 169% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 29% during the coming year according to the five analysts following the company. With the market only predicted to deliver 24%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Lotus Pharmaceutical is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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.

We've established that Lotus Pharmaceutical currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Lotus Pharmaceutical that we have uncovered.

You might be able to find a better investment than Lotus Pharmaceutical. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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