Earnings Tell The Story For Gold Circuit Electronics Ltd. (TWSE:2368) As Its Stock Soars 28%

Gold Circuit Electronics Ltd. (TWSE:2368) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, it's still not a stretch to say that Gold Circuit Electronics' price-to-earnings (or "P/E") ratio of 19.8x right now seems quite "middle-of-the-road" compared to the market in Taiwan, where the median P/E ratio is around 21x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Gold Circuit Electronics has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Gold Circuit Electronics

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How Is Gold Circuit Electronics' Growth Trending?

The only time you'd be comfortable seeing a P/E like Gold Circuit Electronics' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 62% gain to the company's bottom line. Pleasingly, EPS has also lifted 121% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 22% as estimated by the eight analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 25%, which is not materially different.

In light of this, it's understandable that Gold Circuit Electronics' P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Gold Circuit Electronics appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Gold Circuit Electronics' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Gold Circuit Electronics that you need to be mindful of.

Of course, you might also be able to find a better stock than Gold Circuit Electronics. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.