Lacklustre Performance Is Driving Everlight Electronics Co., Ltd.'s (TWSE:2393) Low P/E

With a price-to-earnings (or "P/E") ratio of 17.5x Everlight Electronics Co., Ltd. (TWSE:2393) may be sending bullish signals at the moment, given that 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.

Everlight Electronics certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.

See our latest analysis for Everlight Electronics

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Everlight Electronics.

Is There Any Growth For Everlight Electronics?

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

If we review the last year of earnings growth, the company posted a terrific increase of 20%. The latest three year period has also seen a 19% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 15% over the next year. Meanwhile, the rest of the market is forecast to expand by 26%, which is noticeably more attractive.

In light of this, it's understandable that Everlight Electronics' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 Everlight Electronics maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Everlight Electronics that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.