Investors Appear Satisfied With Elite Material Co., Ltd.'s (TWSE:2383) Prospects As Shares Rocket 26%

Elite Material Co., Ltd. (TWSE:2383) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 175% in the last year.

Following the firm bounce in price, Elite Material's price-to-earnings (or "P/E") ratio of 36.8x might make it look like a strong sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 21x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been more advantageous for Elite Material as its earnings haven't fallen as much as the rest of the market. It seems that many are expecting the comparatively superior earnings performance to persist, which has increased investors’ willingness to pay up for the stock. While you'd prefer that its earnings trajectory turned around, you'd at least be hoping it remains less negative than other companies, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Elite Material

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

Is There Enough Growth For Elite Material?

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

Retrospectively, the last year delivered a frustrating 6.7% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 19% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 52% over the next year. That's shaping up to be materially higher than the 22% growth forecast for the broader market.

With this information, we can see why Elite Material is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Elite Material's P/E is flying high just like its stock has during the last month. 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 Elite Material maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Elite Material is showing 2 warning signs in our investment analysis, you should know about.

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.