Getac Technology Corporation’s (TPE:3005) price-to-earnings (or “P/E”) ratio of 11.8x might make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 19x and even P/E’s above 32x 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 limited.

Getac Technology has been doing a reasonable job lately as its earnings haven’t declined as much as most other companies. One possibility is that the P/E is low because investors think this relatively better earnings performance might be about to deteriorate significantly. You’d much rather the company wasn’t bleeding earnings if you still believe in the business. But at the very least, you’d be hoping that earnings don’t fall off a cliff completely if your plan is to pick up some stock while it’s out of favour.

Check out our latest analysis for Getac Technology

TSEC:3005 Price Based on Past Earnings July 27th 2020

Want the full picture on analyst estimates for the company? Then our free report on Getac Technology will help you uncover what’s on the horizon.

Does Growth Match The Low P/E?

There’s an inherent assumption that a company should underperform the market for P/E ratios like Getac Technology’s to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company’s bottom line as the year before. This isn’t what shareholders were looking for as it means they’ve been left with a 8.2% decline in EPS over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

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Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 13% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 9.8% each year, which is noticeably less attractive.

With this information, we find it odd that Getac Technology is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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.

Our examination of Getac Technology’s analyst forecasts revealed that its superior earnings outlook isn’t contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we’ve discovered 1 warning sign for Getac Technology that you should be aware of.

If you’re unsure about the strength of Getac 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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