The Market Lifts Seoyon Co., Ltd. (KRX:007860) Shares 34% But It Can Do More

Seoyon Co., Ltd. (KRX:007860) shares have continued their recent momentum with a 34% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 9.6% isn't as impressive.

Even after such a large jump in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Seoyon as a highly attractive investment with its 2x 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 limited.

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For example, consider that Seoyon's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.

View our latest analysis for Seoyon

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Seoyon's earnings, revenue and cash flow.

How Is Seoyon's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.4%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 147% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Seoyon is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Even after such a strong price move, Seoyon's P/E still trails the rest of the market significantly. 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 Seoyon currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Plus, you should also learn about these 2 warning signs we've spotted with Seoyon.

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