Stock Analysis

Earnings Not Telling The Story For Jentech Precision Industrial Co., Ltd (TWSE:3653) After Shares Rise 26%

TWSE:3653
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Jentech Precision Industrial Co., Ltd (TWSE:3653) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 115% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 21x, you may consider Jentech Precision Industrial as a stock to avoid entirely with its 51.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been pleasing for Jentech Precision Industrial as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Jentech Precision Industrial

pe-multiple-vs-industry
TWSE:3653 Price to Earnings Ratio vs Industry February 26th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jentech Precision Industrial.

How Is Jentech Precision Industrial's Growth Trending?

In order to justify its P/E ratio, Jentech Precision Industrial would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.6% last year. This was backed up an excellent period prior to see EPS up by 125% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 12% as estimated by the watching the company. That's shaping up to be materially lower than the 22% growth forecast for the broader market.

In light of this, it's alarming that Jentech Precision Industrial's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Jentech Precision Industrial's P/E

The strong share price surge has got Jentech Precision Industrial's P/E rushing to great heights as well. 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 Jentech Precision Industrial currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Jentech Precision Industrial is showing 2 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Valuation is complex, but we're helping make it simple.

Find out whether Jentech Precision Industrial is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.