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When close to half the companies in Taiwan have price-to-earnings ratios (or “P/E’s”) above 21x, you may consider Apex Science & Engineering Corp. (TPE:3052) as a highly attractive investment with its 8.4x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Recent times have been quite advantageous for Apex Science & Engineering as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn’t eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Apex Science & Engineering
Although there are no analyst estimates available for Apex Science & Engineering, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The Low P/E?
The only time you’d be truly comfortable seeing a P/E as depressed as Apex Science & Engineering’s is when the company’s growth is on track to lag the market decidedly.
Retrospectively, the last year delivered an exceptional 82% gain to the company’s bottom line. Pleasingly, EPS has also lifted 59% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company’s momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it’s understandable that Apex Science & Engineering’s P/E sits below the majority of other companies. Apparently many shareholders weren’t comfortable holding on to something they believe will continue to trail the bourse.
What We Can Learn From Apex Science & Engineering’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.
As we suspected, our examination of Apex Science & Engineering revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about these 2 warning signs we’ve spotted with Apex Science & Engineering.
You might be able to find a better investment than Apex Science & Engineering. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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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