At a price-to-earnings (P/E) ratio of 14.8x, Synnex Technology International Corporation (TWSE:2347) may be sending a bullish signal at present, given that nearly half of Taiwanese companies have P/E ratios above 22x, and P/Es above 39x are not uncommon. That said, we need to dig a little deeper to determine if there is a rational basis for the lower P/E.
Synex Technology International has performed poorly recently, with its earnings trending downwards, meaning it is underperforming compared to other companies that are growing on average. The low P/E ratio is likely because investors believe that the company's poor earnings performance will not improve any further. If this is the case, existing shareholders will have a hard time getting excited about the future performance of the stock.
Check out our latest analysis for Synnex Technology International
TWSE:2347 Price to Earnings Ratio vs Industry 25 August 2024 Want to find out what analysts think about Synnex Technology International's future compared to the industry? If so, our free report is a great place to start.
Are there signs of growth for Synnex Technology International?
The assumption is inherently that for a P/E ratio like Synnex Technology International's to be considered reasonable, a company must be performing below the market average.
First, looking back, the company's earnings per share growth last year was nothing to be excited about, falling a disappointing 45%. As a result, earnings three years ago were also down 25% overall. So shareholders would be pessimistic about earnings growth in the medium term.
Looking ahead, two analysts who follow the company expect EPS to rise 18% over the next year, which would be significantly lower than the overall market forecast of 25% growth.
With this in mind, it's understandable that Synex Technology International's P/E is lower than the majority of other companies – apparently many shareholders were uncomfortable holding onto the stock while the company was unlikely to be very prosperous in the future.
Key Takeaways
The power of price-to-earnings ratios is not primarily as a valuation tool, but rather as a gauge of current investor sentiment and future expectations.
We can see that Synex Technology International is maintaining a low P/E due to weak growth forecasts, which are predictably lower than the overall market. Shareholders are currently accepting that future earnings will probably not bring any pleasant surprises and are accepting the low P/E. In these circumstances, it is hard to see the share price rising significantly in the near future.
There are other important risk factors to consider before investing, and we've spotted 2 warning signs for Synnex Technology International you should be aware of.
Of course, you might find a better stock than Synnex Technology International, so we suggest you take a look at this free collection of other companies with reasonable P/E ratios and strong earnings growth.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
