It's A Story Of Risk Vs Reward With ASE Technology Holding Co., Ltd. (TWSE:3711)

With a median price-to-earnings (or "P/E") ratio of close to 22x in Taiwan, you could be forgiven for feeling indifferent about ASE Technology Holding Co., Ltd.'s (TWSE:3711) P/E ratio of 21.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

ASE Technology Holding hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for ASE Technology Holding

Keen to find out how analysts think ASE Technology Holding's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like ASE Technology Holding's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 33%. This means it has also seen a slide in earnings over the longer-term as EPS is down 12% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 27% per annum over the next three years. With the market only predicted to deliver 17% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that ASE Technology Holding's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From ASE Technology Holding's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that ASE Technology Holding currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for ASE Technology Holding that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.