Market Participants Recognise Asia Vital Components Co., Ltd.'s (TWSE:3017) Earnings Pushing Shares 29% Higher

Despite an already strong run, Asia Vital Components Co., Ltd. (TWSE:3017) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days were the cherry on top of the stock's 314% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, Asia Vital Components may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 40.5x, since almost half of all companies in Taiwan have P/E ratios under 21x and even P/E's lower than 15x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Asia Vital Components certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Asia Vital Components

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

What Are Growth Metrics Telling Us About The High P/E?

Asia Vital Components' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. Pleasingly, EPS has also lifted 157% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 34% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 22% growth forecast for the broader market.

In light of this, it's understandable that Asia Vital Components' 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 Asia Vital Components' P/E?

Asia Vital Components' P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Asia Vital Components' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Asia Vital Components (of which 1 doesn't sit too well with us!) you should know about.

Of course, you might also be able to find a better stock than Asia Vital Components. 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.