Why We're Not Concerned Yet About Truecaller AB (publ)'s (STO:TRUE B) 27% Share Price Plunge

Unfortunately for some shareholders, the Truecaller AB (publ) (STO:TRUE B) share price has dived 27% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 45% in the last year.

Even after such a large drop in price, Truecaller's price-to-earnings (or "P/E") ratio of 34.7x might still make it look like a 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 15x 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 as high as it is.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Truecaller's earnings growth of late has been pretty similar to most other companies. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

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.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Truecaller's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a decent 4.3% gain to the company's bottom line. EPS has also lifted 5.3% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 26% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 18% per year, which is noticeably less attractive.

With this information, we can see why Truecaller is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Truecaller's P/E hasn't come down all the way after its stock plunged. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings 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.

You always need to take note of risks, for example - Truecaller has 1 warning sign we think you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.