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Investor Optimism Abounds Jochu Technology Co., Ltd. (TPE:3543) But Growth Is Lacking – Simply Wall St News


With a price-to-earnings (or “P/E”) ratio of 38.8x Jochu Technology Co., Ltd. (TPE:3543) may be sending very bearish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios under 18x and even P/E’s lower than 12x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it’s justified.

As an illustration, earnings have deteriorated at Jochu Technology over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jochu Technology

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TSEC:3543 Price Based on Past Earnings August 4th 2020

Although there are no analyst estimates available for Jochu Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jochu Technology’s Growth Trending?

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

Retrospectively, the last year delivered a frustrating 58% decrease to the company’s bottom line. As a result, earnings from three years ago have also fallen 45% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 15% shows it’s an unpleasant look.

With this information, we find it concerning that Jochu Technology is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren’t willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Jochu Technology’s P/E?

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.

We’ve established that Jochu Technology currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 5 warning signs for Jochu Technology that we have uncovered.

If you’re unsure about the strength of Jochu Technology’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. 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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