Optimistic Investors Push FIBERPRO, Inc. (KOSDAQ:368770) Shares Up 26% But Growth Is Lacking

Despite an already strong run, FIBERPRO, Inc. (KOSDAQ:368770) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 85%.

After such a large jump in price, FIBERPRO may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 41.8x, since almost half of all companies in Korea have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, FIBERPRO has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for FIBERPRO

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

In order to justify its P/E ratio, FIBERPRO would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 75% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 63% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 36% during the coming year according to the only analyst following the company. With the market predicted to deliver 30% growth , that's a disappointing outcome.

With this information, we find it concerning that FIBERPRO is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On FIBERPRO's P/E

The strong share price surge has got FIBERPRO's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that FIBERPRO currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for FIBERPRO that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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