Improved Earnings Required Before Ventec International Group Co.,Ltd. (TWSE:6672) Stock's 25% Jump Looks Justified

Ventec International Group Co.,Ltd. (TWSE:6672) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.7% in the last twelve months.

Even after such a large jump in price, Ventec International GroupLtd's price-to-earnings (or "P/E") ratio of 15.8x might still make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 21x and even P/E's above 36x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

As an illustration, earnings have deteriorated at Ventec International GroupLtd over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

See our latest analysis for Ventec International GroupLtd

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 Ventec International GroupLtd's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Ventec International GroupLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 16%. The last three years don't look nice either as the company has shrunk EPS by 54% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Ventec International GroupLtd 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 recent earnings trends are already weighing down the shares.

What We Can Learn From Ventec International GroupLtd's P/E?

The latest share price surge wasn't enough to lift Ventec International GroupLtd's P/E close to the market median. 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 Ventec International GroupLtd revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Ventec International GroupLtd (including 1 which is a bit unpleasant).

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.