Why Investors Shouldn't Be Surprised By Nan Ya Printed Circuit Board Corporation's (TWSE:8046) Low P/E

With a price-to-earnings (or "P/E") ratio of 20.8x Nan Ya Printed Circuit Board Corporation (TWSE:8046) may be sending bullish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios greater than 24x and even P/E's higher than 41x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Nan Ya Printed Circuit Board has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Nan Ya Printed Circuit Board

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nan Ya Printed Circuit Board.

Is There Any Growth For Nan Ya Printed Circuit Board?

There's an inherent assumption that a company should underperform the market for P/E ratios like Nan Ya Printed Circuit Board's to be considered reasonable.

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 70%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 59% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 1.7% per annum as estimated by the ten analysts watching the company. With the market predicted to deliver 16% growth each year, that's a disappointing outcome.

With this information, we are not surprised that Nan Ya Printed Circuit Board is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Nan Ya Printed Circuit Board's P/E?

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.

We've established that Nan Ya Printed Circuit Board maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Nan Ya Printed Circuit Board that you need to take into consideration.

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.