WinWay Technology Co., Ltd. (TWSE:6515)'s 29% rise shows its popularity with investors.

Winway Technology Co., Ltd. (TWSE:6515) stock had a very successful month, rising 29% after a volatile period earlier. The annual increase in the past 30 days has reached 27%.

With its price soaring, WinWay Technology currently trades at a price-to-earnings ratio (or “P/E”) of 67.8x, which could be sending a very bearish signal. Because almost half of all companies in Taiwan have his P/E ratio. It's not uncommon for multiples to be less than 23x and even P/E ratios to be less than 15x. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the P/E ratio being so elevated.

WinWay Technology has been struggling lately, with revenue declining faster than most other companies. One possibility is that the P/E ratio is high because investors think the company will completely turn things around and accelerate, overtaking most other companies on the market. If not, existing shareholders could become very nervous about the viability of the stock price.

Check out our latest analysis for WinWay Technology.

Want to see how analysts think WinWay Technology's future compares to its industry? free Reports are a great place to start.

What do growth metrics tell us about a high P/E ratio?

To justify WinWay Technology's P/E ratio, it would need to achieve outstanding growth that significantly outpaces the market.

Looking back at last year's earnings, we unfortunately saw the company's profit drop by 58%. This means his profits are decreasing in the long run, as his EPS has decreased by a total of 23% over the past three years. Therefore, shareholders would have been disappointed with the medium-term profit growth rate.

Turning to the outlook, the 3 analysts who follow the company estimate that the next year should deliver growth of 108%. This figure is expected to significantly exceed the overall market growth rate forecast of 25%.

This information helps explain why WinWay Technology is trading at a very high P/E ratio compared to the market. Most investors expect this strong future growth and appear to be willing to pay more for the stock.

The last word

WinWay Technology's P/E ratio is as high as the stock price has been over the last month. Although we are usually careful not to read too much into price-to-earnings ratios when making investment decisions, price-to-earnings ratios can reveal a lot about what other market participants think about a company. there is.

As we expected, an examination of analyst forecasts for WinWay Technology reveals that the company's excellent earnings outlook is contributing to its high P/E ratio. At this stage, investors feel that the potential for earnings deterioration is not large enough to justify a lower P/E ratio. Under these circumstances, it is unlikely that stock prices will fall significantly in the near future.

You should always think about risk.Good example we found 2 Warning Signs for WinWay Technology Note that one of them is important.

In these cases Risks force us to reconsider our opinions on WinWay technologyexplore our interactive list of quality stocks to see what else is out there.

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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.