Hua Yu Lien Development Co., Ltd (TWSE:1436) Stock Rockets 33% But Many Are Still Ignoring The Company

Hua Yu Lien Development Co., Ltd (TWSE:1436) shares have continued their recent momentum with a 33% gain in the last month alone. The annual gain comes to 156% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Hua Yu Lien Development's price-to-earnings (or "P/E") ratio of 15.4x might still make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 24x and even P/E's above 41x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Hua Yu Lien Development has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Hua Yu Lien Development

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

Is There Any Growth For Hua Yu Lien Development?

Hua Yu Lien Development's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. The strong recent performance means it was also able to grow EPS by 405% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Hua Yu Lien Development is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

The latest share price surge wasn't enough to lift Hua Yu Lien Development's P/E close to the market median. 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 Hua Yu Lien Development currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Hua Yu Lien Development (1 is potentially serious!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.