of Foxconn Industrial Internet Co., Ltd. (SHSE:601138) share price has performed very well over the last month, increasing by a hefty 26%. Looking back a little further, it’s encouraging to see that the share price is up 89% in the last year.
Prices have soared, but given Foxconn Industrial Internet’s price-to-earnings ratio of 16.6 times, there is still room to buy at this point compared to the Chinese market, which accounts for about half of the companies. It may look like. Companies with P/E ratios of over 30x and over 53x are also very common. However, it would be unwise to take the P/E ratio at face value, as there may be an explanation as to why it is limited.
Foxconn Industrial Internet has certainly been doing a good job of late, with positive revenue growth while most other companies have seen their earnings slide. One possibility is that the P/E ratio is low because investors think this company’s profits will decline as quickly as other companies. If you like the company, you’ll hope it doesn’t so you can potentially buy shares when the company is unpopular.
Check out our latest analysis for Foxconn Industrial Internet.
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Does growth equate to a low P/E ratio?
There is an inherent assumption that for a P/E ratio like Foxconn Industrial Internet’s to be considered reasonable, a company’s P/E ratio must be below the market.
First, looking at the past, we see that the company managed to grow its earnings per share by a significant 5.9% in the last year. Thanks in part to growth over the past 12 months, EPS has also increased by a total of 28% compared to three years ago. So we can say that recent earnings growth has been respectable for the company.
Looking to the future, the analysts covering the company estimate that its revenue should grow 10.0% annually over the next three years. The market is expected to grow 22% annually, and the company’s earnings are expected to be weak.
This information helps explain why Foxconn Industrial Internet is trading at a lower P/E than the market. Most investors expect future growth to be limited and are only willing to pay less for the stock.
What can we learn from Foxconn Industrial Internet’s P/E ratio?
The recent stock price rally wasn’t enough to lift Foxconn Industrial Internet’s P/E ratio to near the market median. Generally, we like to limit our use of price-to-earnings ratios to establishing what the market thinks about a company’s overall health.
As we expected, a look at Foxconn Industrial Internet’s analyst forecasts reveals that its poor earnings outlook is contributing to its low P/E ratio. For now, shareholders are accepting the low P/E ratio as they accept that future earnings probably won’t come as a pleasant surprise. Under these circumstances, it is difficult to imagine that stock prices will rise significantly in the near future.
You should always think about risk.Good example we found 1 warning sign for Foxconn Industrial Internet you should know.
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Valuation is complex, but we help make it simple.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
