Seoyon E-Hwa Co., Ltd. (KRX:200880) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Seoyon E-Hwa Co., Ltd. (KRX:200880) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce 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 E-Hwa as a highly attractive investment with its 3.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Seoyon E-Hwa certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Seoyon E-Hwa

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Seoyon E-Hwa.

How Is Seoyon E-Hwa's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Seoyon E-Hwa's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 90% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 33% growth forecast for the broader market.

With this information, we can see why Seoyon E-Hwa is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Seoyon E-Hwa's P/E?

Seoyon E-Hwa's recent share price jump still sees its P/E sitting firmly flat on the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Seoyon E-Hwa maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Seoyon E-Hwa that we have uncovered.

You might be able to find a better investment than Seoyon E-Hwa. 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.

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