Investors Aren't Entirely Convinced By Micro-Star International Co., Ltd.'s (TWSE:2377) Earnings

With a price-to-earnings (or "P/E") ratio of 17.3x Micro-Star International Co., Ltd. (TWSE:2377) may be sending bullish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios greater than 23x and even P/E's higher than 40x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Micro-Star International has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Micro-Star International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Micro-Star International.

Does Growth Match The Low P/E?

Micro-Star International's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. As a result, earnings from three years ago have also fallen 5.4% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 44% as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's peculiar that Micro-Star International's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that Micro-Star International currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Micro-Star International that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.