TES Co., Ltd (KOSDAQ:095610) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

TES Co., Ltd (KOSDAQ:095610) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last month tops off a massive increase of 224% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about TES' P/E ratio of 13.9x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, TES has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for TES

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

Does Growth Match The P/E?

TES' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 366% last year. The latest three year period has also seen a 17% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 10.0% as estimated by the six analysts watching the company. With the market predicted to deliver 36% growth , that's a disappointing outcome.

With this information, we find it concerning that TES is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Key Takeaway

Its shares have lifted substantially and now TES' P/E is also back up to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that TES currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for TES that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.