Hua Yu Lien Development Co., Ltd's (TWSE:1436) Shares Leap 38% Yet They're Still Not Telling The Full Story

Hua Yu Lien Development Co., Ltd (TWSE:1436) shares have continued their recent momentum with a 38% gain in the last month alone. The last month tops off a massive increase of 203% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Hua Yu Lien Development's price-to-earnings (or "P/E") ratio of 21.6x is worth a mention when the median P/E in Taiwan is similar at about 24x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Hua Yu Lien Development as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See 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.

How Is Hua Yu Lien Development's Growth Trending?

In order to justify its P/E ratio, Hua Yu Lien Development would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 46% last year. The latest three year period has also seen an excellent 296% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Hua Yu Lien Development's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Hua Yu Lien Development's P/E?

Its shares have lifted substantially and now Hua Yu Lien Development's P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Hua Yu Lien Development currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Hua Yu Lien Development (2 don't sit too well with us!) that you should be aware of before investing here.

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.

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