Shinfox Energy Co., Ltd. (TWSE:6806) Looks Just Right With A 25% Price Jump

Shinfox Energy Co., Ltd. (TWSE:6806) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 34%.

Since its price has surged higher, given close to half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 23x, you may consider Shinfox Energy as a stock to avoid entirely with its 51.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Shinfox Energy has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Shinfox Energy

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How Is Shinfox Energy's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 178% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 41% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 135% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

With this information, we can see why Shinfox Energy is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Shinfox Energy have built up some good momentum lately, which has really inflated its 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 Shinfox Energy 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Shinfox Energy (including 2 which make us uncomfortable).

If these risks are making you reconsider your opinion on Shinfox Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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