There's Reason For Concern Over Wonik Cube Corp.'s (KOSDAQ:014190) Massive 53% Price Jump

Wonik Cube Corp. (KOSDAQ:014190) shares have continued their recent momentum with a 53% gain in the last month alone. The annual gain comes to 298% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Wonik Cube's price-to-earnings (or "P/E") ratio of 41.2x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 20x and even P/E's below 11x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at Wonik Cube over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Wonik Cube

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 Wonik Cube's earnings, revenue and cash flow.

Does Growth Match The High P/E?

Wonik Cube's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. Even so, admirably EPS has lifted 53% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 45% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Wonik Cube is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Shares in Wonik Cube have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Wonik Cube revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Wonik Cube (1 is a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Wonik Cube, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. 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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