Further Upside For Uracle Co., Ltd. (KOSDAQ:088340) Shares Could Introduce Price Risks After 31% Bounce

Those holding Uracle Co., Ltd. (KOSDAQ:088340) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, it's still not a stretch to say that Uracle's price-to-earnings (or "P/E") ratio of 12.6x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Uracle's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Uracle

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

How Is Uracle's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.2%. Still, the latest three year period has seen an excellent 269% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome 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 34% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Uracle 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

Uracle appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Uracle 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.

Plus, you should also learn about these 3 warning signs we've spotted with Uracle (including 1 which is potentially serious).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.