Earnings Not Telling The Story For Dgenx Co., Ltd. (KOSDAQ:113810) After Shares Rise 55%

Dgenx Co., Ltd. (KOSDAQ:113810) shares have continued their recent momentum with a 55% gain in the last month alone. The last month tops off a massive increase of 106% in the last year.

After such a large jump in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider Dgenx as a stock to avoid entirely with its 20.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's exceedingly strong of late, Dgenx has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Dgenx

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

Is There Enough Growth For Dgenx?

The only time you'd be truly comfortable seeing a P/E as steep as Dgenx's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 92% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 29% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Dgenx is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Dgenx's P/E?

Shares in Dgenx have built up some good momentum lately, which has really inflated its P/E. 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 Dgenx currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Dgenx has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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