TURVO International Co., Ltd. (TWSE:2233) Shares Fly 39% But Investors Aren't Buying For Growth

TURVO International Co., Ltd. (TWSE:2233) shares have had a really impressive month, gaining 39% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 51%.

In spite of the firm bounce in price, TURVO International's price-to-earnings (or "P/E") ratio of 19x might still make it look like a buy right now compared to the market in Taiwan, where around half of the companies have P/E ratios above 22x and even P/E's above 40x 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 limited.

With earnings growth that's exceedingly strong of late, TURVO International has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for TURVO International

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 TURVO International's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like TURVO International's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. The latest three year period has also seen a 22% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that TURVO International's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On TURVO International's P/E

Despite TURVO International's shares building up a head of steam, its P/E still lags most other companies. 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 TURVO International revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for TURVO International you should know about.

You might be able to find a better investment than TURVO International. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.