Little Excitement Around Jean Co.,Ltd's (TWSE:2442) Earnings As Shares Take 26% Pounding

Simply Wall St · 10/15 22:15

The Jean Co.,Ltd (TWSE:2442) share price has fared very poorly over the last month, falling by a substantial 26%. Longer-term, the stock has been solid despite a difficult 30 days, gaining 23% in the last year.

Although its price has dipped substantially, JeanLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.6x, since almost half of all companies in Taiwan have P/E ratios greater than 22x and even P/E's higher than 39x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

JeanLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for JeanLtd

pe-multiple-vs-industry
TWSE:2442 Price to Earnings Ratio vs Industry October 15th 2024
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on JeanLtd's earnings, revenue and cash flow.

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

JeanLtd'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.

If we review the last year of earnings growth, the company posted a terrific increase of 221%. Still, incredibly EPS has fallen 8.1% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 24% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that JeanLtd's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

JeanLtd's recently weak share price has pulled its P/E below most other companies. 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.

As we suspected, our examination of JeanLtd revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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.

Before you take the next step, you should know about the 4 warning signs for JeanLtd (2 are a bit unpleasant!) that we have uncovered.

If these risks are making you reconsider your opinion on JeanLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.