Nien Made Enterprise Co., LTD. (TWSE:8464) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 47%.
Even after such a large jump in price, it’s still not a stretch to say that Nien Made Enterprise’s price-to-earnings (or “P/E”) ratio of 21.6x right now seems quite “middle-of-the-road” compared to the market in Taiwan, where the median P/E ratio is around 22x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
With earnings growth that’s superior to most other companies of late, Nien Made Enterprise has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.
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What Are Growth Metrics Telling Us About The P/E?
The only time you’d be comfortable seeing a P/E like Nien Made Enterprise’s is when the company’s growth is tracking the market closely.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. EPS has also lifted 17% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 7.7% each year during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is noticeably more attractive.
In light of this, it’s curious that Nien Made Enterprise’s P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren’t willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.
What We Can Learn From Nien Made Enterprise’s P/E?
Nien Made Enterprise appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.
We’ve established that Nien Made Enterprise currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it’s challenging to accept these prices as being reasonable.
And what about other risks? Every company has them, and we’ve spotted 1 warning sign for Nien Made Enterprise you should know about.
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.
