Jentech Precision Industrial Co., Ltd's (TWSE:3653) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Jentech Precision Industrial Co., Ltd (TWSE:3653) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 122% in the last year.

Since its price has surged higher, Jentech Precision Industrial's price-to-earnings (or "P/E") ratio of 68.7x 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Jentech Precision Industrial has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Jentech Precision Industrial

Although there are no analyst estimates available for Jentech Precision Industrial, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jentech Precision Industrial's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Jentech Precision Industrial's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 5.1%. Pleasingly, EPS has also lifted 214% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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.

In light of this, it's understandable that Jentech Precision Industrial's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

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

Shares in Jentech Precision Industrial have built up some good momentum lately, which has really inflated its 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 Jentech Precision Industrial revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Jentech Precision Industrial you should be aware of.

You might be able to find a better investment than Jentech Precision Industrial. 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.