Kinsus Interconnect Technology Corp. (TWSE:3189) Not Flying Under The Radar

Kinsus Interconnect Technology Corp.'s (TWSE:3189) price-to-earnings (or "P/E") ratio of 73.8x might make it look like a strong sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 21x and even P/E's below 15x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, Kinsus Interconnect Technology's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Kinsus Interconnect Technology

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What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Kinsus Interconnect Technology's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. This means it has also seen a slide in earnings over the longer-term as EPS is down 76% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 266% as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's understandable that Kinsus Interconnect Technology's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Kinsus Interconnect Technology's P/E?

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.

As we suspected, our examination of Kinsus Interconnect Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Kinsus Interconnect Technology with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Kinsus Interconnect Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.