King Slide Works Co., Ltd. (TWSE:2059) Stocks Shoot Up 31% But Its P/E Still Looks Reasonable

The King Slide Works Co., Ltd. (TWSE:2059) share price has done very well over the last month, posting an excellent gain of 31%. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Since its price has surged higher, King Slide Works may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 38.8x, since almost half of all companies in Taiwan have P/E ratios under 21x and even P/E's lower than 15x are not unusual. 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.

King Slide Works certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for King Slide Works

Keen to find out how analysts think King Slide Works' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For King Slide Works?

In order to justify its P/E ratio, King Slide Works would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 61%. The latest three year period has also seen an excellent 169% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 39% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 25%, which is noticeably less attractive.

With this information, we can see why King Slide Works is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in King Slide Works have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that King Slide Works maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for King Slide Works that you should be aware of.

You might be able to find a better investment than King Slide Works. 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.