Sweeten Real Estate Development Co.,Ltd. (TWSE:5525) Soars 28% But It's A Story Of Risk Vs Reward

Sweeten Real Estate Development Co.,Ltd. (TWSE:5525) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 61%.

Even after such a large jump in price, Sweeten Real Estate DevelopmentLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.4x, since almost half of all companies in Taiwan have P/E ratios greater than 24x and even P/E's higher than 41x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Sweeten Real Estate DevelopmentLtd recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Sweeten Real Estate DevelopmentLtd

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 Sweeten Real Estate DevelopmentLtd's earnings, revenue and cash flow.

How Is Sweeten Real Estate DevelopmentLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Sweeten Real Estate DevelopmentLtd's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. The latest three year period has also seen an excellent 1,426% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 27% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Sweeten Real Estate DevelopmentLtd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Despite Sweeten Real Estate DevelopmentLtd's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Sweeten Real Estate DevelopmentLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Sweeten Real Estate DevelopmentLtd (2 don't sit too well with us!) that you should be aware of before investing here.

You might be able to find a better investment than Sweeten Real Estate DevelopmentLtd. 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.