Sewon Co.,Ltd (KOSDAQ:234100) Looks Just Right With A 30% Price Jump

Sewon Co.,Ltd (KOSDAQ:234100) shareholders have had their patience rewarded with a 30% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Following the firm bounce in price, SewonLtd's price-to-earnings (or "P/E") ratio of 15x might make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Recent times have been quite advantageous for SewonLtd as its earnings have been rising very briskly. 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 SewonLtd

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

How Is SewonLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. The latest three year period has also seen an excellent 122% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why SewonLtd is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

SewonLtd shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of SewonLtd revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware SewonLtd is showing 5 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

Of course, you might also be able to find a better stock than SewonLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.