NICE Information Service Co., Ltd.'s (KRX:030190) Share Price Could Signal Some Risk

There wouldn't be many who think NICE Information Service Co., Ltd.'s (KRX:030190) price-to-earnings (or "P/E") ratio of 10.7x is worth a mention when the median P/E in Korea is similar at about 11x. 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.

Recent times have been advantageous for NICE Information Service as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for NICE Information Service

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NICE Information Service.

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

In order to justify its P/E ratio, NICE Information Service would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. Pleasingly, EPS has also lifted 32% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 9.5% over the next year. With the market predicted to deliver 34% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that NICE Information Service's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From NICE Information Service's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that NICE Information Service currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for NICE Information Service with six simple checks.

If you're unsure about the strength of NICE Information Service's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.