Further Upside For Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) Shares Could Introduce Price Risks After 27% Bounce

Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 144% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Oriental Precision & EngineeringLtd's P/E ratio of 16.4x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times have been quite advantageous for Oriental Precision & EngineeringLtd as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Oriental Precision & EngineeringLtd

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

How Is Oriental Precision & EngineeringLtd's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Oriental Precision & EngineeringLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 103%. The strong recent performance means it was also able to grow EPS by 241% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 33% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Oriental Precision & EngineeringLtd's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Oriental Precision & EngineeringLtd's P/E

Its shares have lifted substantially and now Oriental Precision & EngineeringLtd's P/E is also back up to the market median. 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.

We've established that Oriental Precision & EngineeringLtd currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Oriental Precision & EngineeringLtd is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.