Arizon RFID Technology (Cayman) Co., Ltd.'s (TWSE:6863) Shareholders Might Be Looking For Exit

Arizon RFID Technology (Cayman) Co., Ltd.'s (TWSE:6863) price-to-earnings (or "P/E") ratio of 28.5x might make it look like a sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 23x and even P/E's below 16x are quite common. 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 its earnings growth in positive territory compared to the declining earnings of most other companies, Arizon RFID Technology (Cayman) has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Arizon RFID Technology (Cayman)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Arizon RFID Technology (Cayman).

Is There Enough Growth For Arizon RFID Technology (Cayman)?

Arizon RFID Technology (Cayman)'s P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. As a result, it also grew EPS by 19% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the lone analyst following the company. That's shaping up to be similar to the 27% growth forecast for the broader market.

In light of this, it's curious that Arizon RFID Technology (Cayman)'s P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

What We Can Learn From Arizon RFID Technology (Cayman)'s P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Arizon RFID Technology (Cayman) currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Arizon RFID Technology (Cayman) with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Arizon RFID Technology (Cayman). 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.