Gloria Material Technology Corp.’s (GTSM:5009) price-to-earnings (or “P/E”) ratio of 31.5x might make it look like a strong sell right now compared to the market in Taiwan, where around half of the companies have P/E ratios below 18x and even P/E’s below 12x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.
With earnings that are retreating more than the market’s of late, Gloria Material Technology has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
If you’d like to see what analysts are forecasting going forward, you should check out our
Does Growth Match The High P/E?
Gloria Material Technology’s P/E ratio would be typical for a company that’s expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered a frustrating 29% decrease to the company’s bottom line. The last three years don’t look nice either as the company has shrunk EPS by 34% in aggregate. Therefore, it’s fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 54% each year as estimated by the only analyst watching the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.
With this information, we can see why Gloria Material Technology 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
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We’ve established that Gloria Material Technology maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. It’s hard to see the share price falling strongly in the near future under these circumstances.
Before you settle on your opinion, we’ve discovered 2 warning signs for Gloria Material Technology (1 is potentially serious!) that you should be aware of.
You might be able to find a better investment than Gloria Material Technology. 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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