With A 26% Price Drop For Wiwynn Corporation (TWSE:6669) You'll Still Get What You Pay For

Wiwynn Corporation (TWSE:6669) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Indeed, the recent drop has reduced its annual gain to a relatively sedate 6.3% over the last twelve months.

In spite of the heavy fall in price, Wiwynn may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 28.7x, since almost half of all companies in Taiwan have P/E ratios under 23x and even P/E's lower than 16x 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 as high as it is.

With earnings that are retreating more than the market's of late, Wiwynn has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Wiwynn

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

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

Wiwynn's 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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 11%. Even so, admirably EPS has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the analysts watching the company. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Wiwynn'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 Bottom Line On Wiwynn's P/E

There's still some solid strength behind Wiwynn's P/E, if not its share price lately. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Wiwynn maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Wiwynn you should be aware of.

Of course, you might also be able to find a better stock than Wiwynn. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com