With a price-to-earnings (or “P/E”) ratio of 10.9x Alltek Technology Corporation (TPE:3209) may be sending bullish signals at the moment, given that almost half of all companies in Taiwan have P/E ratios greater than 19x and even P/E’s higher than 32x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.
Recent times have been quite advantageous for Alltek Technology as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn’t eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Although there are no analyst estimates available for Alltek Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Any Growth For Alltek Technology?
Alltek Technology’s P/E ratio would be typical for a company that’s only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 39% last year. EPS has also lifted 14% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Weighing that recent medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 13% shows it’s noticeably less attractive on an annualised basis.
In light of this, it’s understandable that Alltek Technology’s P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
What We Can Learn From Alltek Technology’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 Alltek Technology revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won’t provide any pleasant surprises. If recent medium-term earnings trends continue, it’s hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider and we’ve discovered 4 warning signs for Alltek Technology (2 are concerning!) that you should be aware of before investing here.
If you’re unsure about the strength of Alltek 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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