Sewon Co.,Ltd's (KOSDAQ:234100) P/E Is Still On The Mark Following 30% Share Price Bounce

The Sewon Co.,Ltd (KOSDAQ:234100) share price has done very well over the last month, posting an excellent gain of 30%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 23% over that time.

Following the firm bounce in price, given around half the companies in Korea have price-to-earnings ratios (or "P/E's") below 12x, you may consider SewonLtd as a stock to potentially avoid with its 15x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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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

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

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, SewonLtd would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 49% last year. The latest three year period has also seen an excellent 122% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 27% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why SewonLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On SewonLtd's P/E

SewonLtd's P/E is getting right up there since its shares have risen strongly. 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 SewonLtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - SewonLtd has 5 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.

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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.