Accton Technology Corporation's (TWSE:2345) Price In Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 27.8x Accton Technology Corporation (TWSE:2345) may be sending bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 23x and even P/E's lower than 16x 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 as high as it is.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Accton Technology has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Accton Technology

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Accton Technology's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.2%. Pleasingly, EPS has also lifted 76% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 31% as estimated by the five analysts watching the company. With the market only predicted to deliver 27%, the company is positioned for a stronger earnings result.

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

What We Can Learn From Accton Technology's 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 Accton Technology's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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 Accton Technology that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.