Loop Telecommunication International,Inc. (TWSE:3025) Might Not Be As Mispriced As It Looks After Plunging 30%

Loop Telecommunication International,Inc. (TWSE:3025) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Even after such a large drop in price, Loop Telecommunication InternationalInc may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.3x, since almost half of all companies in Taiwan have P/E ratios greater than 21x and even P/E's higher than 37x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Loop Telecommunication InternationalInc certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

See our latest analysis for Loop Telecommunication InternationalInc

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 Loop Telecommunication InternationalInc's earnings, revenue and cash flow.

How Is Loop Telecommunication InternationalInc's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 82% last year. Pleasingly, EPS has also lifted 410% in aggregate from three years ago, thanks to the last 12 months of growth. 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 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Loop Telecommunication InternationalInc's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Loop Telecommunication InternationalInc's P/E has taken a tumble along with its share price. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Loop Telecommunication InternationalInc currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Loop Telecommunication InternationalInc, and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Loop Telecommunication InternationalInc. 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.

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