Sewon Corporation Co.,Ltd. (KOSDAQ:024830) Held Back By Insufficient Growth Even After Shares Climb 56%

Despite an already strong run, Sewon Corporation Co.,Ltd. (KOSDAQ:024830) shares have been powering on, with a gain of 56% in the last thirty days. The last 30 days bring the annual gain to a very sharp 62%.

Even after such a large jump in price, Sewon CorporationLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.5x, since almost half of all companies in Korea have P/E ratios greater than 11x and even P/E's higher than 23x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Recent times have been quite advantageous for Sewon CorporationLtd as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Sewon CorporationLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sewon CorporationLtd will help you shine a light on its historical performance.

How Is Sewon CorporationLtd's Growth Trending?

In order to justify its P/E ratio, Sewon CorporationLtd would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 73% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 19% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Sewon CorporationLtd is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

Even after such a strong price move, Sewon CorporationLtd's P/E still trails the rest of the market significantly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Sewon CorporationLtd maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 4 warning signs we've spotted with Sewon CorporationLtd (including 2 which are a bit unpleasant).

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

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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.