Further Upside For Totech Corporation (TSE:9960) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, Totech Corporation (TSE:9960) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 75% in the last year.

Although its price has surged higher, there still wouldn't be many who think Totech's price-to-earnings (or "P/E") ratio of 15.7x is worth a mention when the median P/E in Japan is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Totech as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Totech

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 Totech's earnings, revenue and cash flow.

How Is Totech's Growth Trending?

Totech's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 30%. The latest three year period has also seen an excellent 46% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Totech is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Totech appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Totech revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Totech with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.