Compeq Manufacturing Co., Ltd. (TWSE:2313) Looks Inexpensive But Perhaps Not Attractive Enough

Compeq Manufacturing Co., Ltd.'s (TWSE:2313) price-to-earnings (or "P/E") ratio of 13.9x might make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 22x and even P/E's above 38x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, Compeq Manufacturing has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Compeq Manufacturing

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Compeq Manufacturing.

How Is Compeq Manufacturing's Growth Trending?

In order to justify its P/E ratio, Compeq Manufacturing would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. The latest three year period has also seen a 24% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 19% over the next year. With the market predicted to deliver 25% growth , the company is positioned for a weaker earnings result.

In light of this, it's understandable that Compeq Manufacturing's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Compeq Manufacturing's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Compeq Manufacturing maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Compeq Manufacturing you should know about.

If you're unsure about the strength of Compeq Manufacturing's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.