Wiwynn Corporation (TWSE:6669) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

Wiwynn Corporation (TWSE:6669) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Following the firm bounce in price, given around half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 21x, you may consider Wiwynn as a stock to potentially avoid with its 25.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Wiwynn certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View 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.

Is There Enough Growth For Wiwynn?

The only time you'd be truly comfortable seeing a P/E as high as Wiwynn's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Pleasingly, EPS has also lifted 107% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 25% as estimated by the analysts watching the company. That's shaping up to be similar to the 26% growth forecast for the broader market.

In light of this, it's curious that Wiwynn's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Wiwynn's P/E

Wiwynn shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of Wiwynn's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Wiwynn (1 can't be ignored) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.