Truecaller AB (publ) (STO:TRUE B) Looks Just Right With A 28% Price Jump

Despite an already strong run, Truecaller AB (publ) (STO:TRUE B) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 108% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Truecaller's price-to-earnings (or "P/E") ratio of 45.1x might make it look like a strong sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 23x and even P/E's below 14x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Truecaller could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Truecaller

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

How Is Truecaller's Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. However, a few strong years before that means that it was still able to grow EPS by an impressive 181% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 33% per annum as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 21% per year growth forecast for the broader market.

In light of this, it's understandable that Truecaller's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Truecaller's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Truecaller's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Truecaller with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Truecaller. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.