Earnings Tell The Story For Sung Kwang Bend Co.,Ltd. (KOSDAQ:014620) As Its Stock Soars 27%

Sung Kwang Bend Co.,Ltd. (KOSDAQ:014620) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last month tops off a massive increase of 178% in the last year.

Since its price has surged higher, Sung Kwang BendLtd's price-to-earnings (or "P/E") ratio of 22x 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 13x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Sung Kwang BendLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Sung Kwang BendLtd

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Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Sung Kwang BendLtd's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 6.5%. Pleasingly, EPS has also lifted 124% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 22% per annum over the next three years. With the market only predicted to deliver 18% per year, the company is positioned for a stronger earnings result.

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

The Bottom Line On Sung Kwang BendLtd's P/E

Sung Kwang BendLtd's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Sung Kwang BendLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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 these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for Sung Kwang BendLtd that we have uncovered.

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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.