Earnings Not Telling The Story For Cyberlinks Co., Ltd. (TSE:3683) After Shares Rise 46%

The Cyberlinks Co., Ltd. (TSE:3683) share price has done very well over the last month, posting an excellent gain of 46%. The last 30 days bring the annual gain to a very sharp 33%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Cyberlinks' P/E ratio of 14.9x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Cyberlinks certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 Cyberlinks

Although there are no analyst estimates available for Cyberlinks, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Cyberlinks' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 82% gain to the company's bottom line. The latest three year period has also seen a 17% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 10% shows it's noticeably less attractive on an annualised basis.

In light of this, it's curious that Cyberlinks' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Cyberlinks' P/E

Cyberlinks' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Cyberlinks currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 2 warning signs for Cyberlinks (1 is significant!) that we have uncovered.

Of course, you might also be able to find a better stock than Cyberlinks. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.