Earnings Working Against Genius Electronic Optical Co.,Ltd.'s (TWSE:3406) Share Price

With a price-to-earnings (or "P/E") ratio of 11x Genius Electronic Optical Co.,Ltd. (TWSE:3406) may be sending bullish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios greater than 22x and even P/E's higher than 40x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Genius Electronic OpticalLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Genius Electronic OpticalLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Genius Electronic OpticalLtd.

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

The only time you'd be truly comfortable seeing a P/E as low as Genius Electronic OpticalLtd's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 65% last year. The latest three year period has also seen an excellent 95% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 2.6% per annum during the coming three years according to the seven analysts following the company. With the market predicted to deliver 17% growth per year, that's a disappointing outcome.

With this information, we are not surprised that Genius Electronic OpticalLtd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Genius Electronic OpticalLtd's P/E

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.

We've established that Genius Electronic OpticalLtd maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Genius Electronic OpticalLtd (1 makes us a bit uncomfortable!) that we have uncovered.

If you're unsure about the strength of Genius Electronic OpticalLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.