A Piece Of The Puzzle Missing From NEOOTO CO., Ltd's (KOSDAQ:212560) 26% Share Price Climb

NEOOTO CO., Ltd (KOSDAQ:212560) 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 77%.

Even after such a large jump in price, NEOOTO's price-to-earnings (or "P/E") ratio of 8.8x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 14x and even P/E's above 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for NEOOTO recently, which is pleasing to see. It might be that many expect the respectable 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 NEOOTO

Although there are no analyst estimates available for NEOOTO, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is NEOOTO's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 15%. Pleasingly, EPS has also lifted 207% in aggregate from three years ago, partly 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 34% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that NEOOTO's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

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

NEOOTO's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that NEOOTO currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for NEOOTO (1 doesn't sit too well with us!) that you need to be mindful of.

If you're unsure about the strength of NEOOTO'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.