GeoVision Inc. (TWSE:3356) Stock Rockets 26% But Many Are Still Ignoring The Company

GeoVision Inc. (TWSE:3356) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 60%.

Even after such a large jump in price, GeoVision's price-to-earnings (or "P/E") ratio of 13.6x 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 23x 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, GeoVision 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for GeoVision

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 GeoVision's earnings, revenue and cash flow.

How Is GeoVision's Growth Trending?

In order to justify its P/E ratio, GeoVision would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 197% gain to the company's bottom line. Pleasingly, EPS has also lifted 174% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that GeoVision is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On GeoVision's P/E

The latest share price surge wasn't enough to lift GeoVision's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that GeoVision 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 GeoVision, and understanding these should be part of your investment process.

You might be able to find a better investment than GeoVision. 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.