Investors Still Aren't Entirely Convinced About SPECO Ltd.'s (KOSDAQ:013810) Earnings Despite 36% Price Jump

The SPECO Ltd. (KOSDAQ:013810) share price has done very well over the last month, posting an excellent gain of 36%. The last month tops off a massive increase of 283% in the last year.

Even after such a large jump in price, it's still not a stretch to say that SPECO's price-to-earnings (or "P/E") ratio of 18.6x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 18x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

SPECO certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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 SPECO

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 SPECO's earnings, revenue and cash flow.

How Is SPECO's Growth Trending?

SPECO'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 106%. The latest three year period has also seen an excellent 227% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 38% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that SPECO is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On SPECO's P/E

SPECO's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that SPECO currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. 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.

Before you settle on your opinion, we've discovered 4 warning signs for SPECO (3 don't sit too well with us!) that you should be aware of.

Of course, you might also be able to find a better stock than SPECO. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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