Jess-link Products Co., Ltd.'s (TWSE:6197) P/E Is Still On The Mark Following 27% Share Price Bounce

Despite an already strong run, Jess-link Products Co., Ltd. (TWSE:6197) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 173% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 23x, you may consider Jess-link Products as a stock to potentially avoid with its 27.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Jess-link Products certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jess-link Products

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jess-link Products' earnings, revenue and cash flow.

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

Jess-link Products' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. The strong recent performance means it was also able to grow EPS by 144% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 26% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Jess-link Products' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Jess-link Products' P/E?

Jess-link Products shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of Jess-link Products revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Jess-link Products (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.