Advancetek Enterprise Co.,Ltd. (TWSE:1442) Stock Rockets 25% But Many Are Still Ignoring The Company

Advancetek Enterprise Co.,Ltd. (TWSE:1442) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Advancetek EnterpriseLtd's price-to-earnings (or "P/E") ratio of 8.2x 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 22x and even P/E's above 38x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's exceedingly strong of late, Advancetek EnterpriseLtd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Advancetek EnterpriseLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Advancetek EnterpriseLtd's earnings, revenue and cash flow.

How Is Advancetek EnterpriseLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Advancetek EnterpriseLtd's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 386%. The latest three year period has also seen an excellent 543% 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.

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.

With this information, we find it odd that Advancetek EnterpriseLtd 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 Bottom Line On Advancetek EnterpriseLtd's P/E

Shares in Advancetek EnterpriseLtd are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Advancetek EnterpriseLtd 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 Advancetek EnterpriseLtd that you need to be mindful of.

If you're unsure about the strength of Advancetek EnterpriseLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.