Chenming Electronic Tech. Corp. (TWSE:3013) Looks Just Right With A 34% Price Jump

The Chenming Electronic Tech. Corp. (TWSE:3013) share price has done very well over the last month, posting an excellent gain of 34%. The annual gain comes to 278% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 21x, you may consider Chenming Electronic Tech as a stock to avoid entirely with its 76.7x P/E ratio. 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 advantageous for Chenming Electronic Tech as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Chenming Electronic Tech

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Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chenming Electronic Tech's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 51% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 195% during the coming year according to the dual analysts following the company. With the market only predicted to deliver 24%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Chenming Electronic Tech's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Chenming Electronic Tech have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Chenming Electronic Tech 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.

Before you settle on your opinion, we've discovered 2 warning signs for Chenming Electronic Tech (1 is a bit concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Chenming Electronic Tech, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.