Investors Appear Satisfied With Telcoware Co.,Ltd.'s (KRX:078000) Prospects As Shares Rocket 26%

Despite an already strong run, Telcoware Co.,Ltd. (KRX:078000) 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 54% in the last year.

Since its price has surged higher, TelcowareLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.9x, since almost half of all companies in Korea have P/E ratios under 13x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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The earnings growth achieved at TelcowareLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for TelcowareLtd

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 TelcowareLtd's earnings, revenue and cash flow.

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

TelcowareLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The latest three year period has also seen an excellent 192% 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.

This is in contrast to the rest of the market, which is expected to grow by 29% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why TelcowareLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From TelcowareLtd's P/E?

TelcowareLtd shares have received a push in the right direction, but its P/E is elevated too. 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 TelcowareLtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for TelcowareLtd (1 makes us a bit uncomfortable) you should be aware of.

If you're unsure about the strength of TelcowareLtd'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.