Phoenix Silicon International Corporation's (TWSE:8028) Share Price Not Quite Adding Up

With a price-to-earnings (or "P/E") ratio of 78.4x Phoenix Silicon International Corporation (TWSE:8028) may be sending very bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 21x and even P/E's lower than 14x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Phoenix Silicon International over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Phoenix Silicon International

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Phoenix Silicon International will help you shine a light on its historical performance.

Is There Enough Growth For Phoenix Silicon International?

In order to justify its P/E ratio, Phoenix Silicon International would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.0% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it concerning that Phoenix Silicon International is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Phoenix Silicon International revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You always need to take note of risks, for example - Phoenix Silicon International has 2 warning signs we think you should be aware of.

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).

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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.