Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) Soars 52% But It's A Story Of Risk Vs Reward

Explore Oriental Precision & EngineeringLtd's Fair Values from the Community and select yours

Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) shareholders have had their patience rewarded with a 52% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Oriental Precision & EngineeringLtd's price-to-earnings (or "P/E") ratio of 12.7x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Oriental Precision & EngineeringLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

See our latest analysis for Oriental Precision & EngineeringLtd

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 Oriental Precision & EngineeringLtd's earnings, revenue and cash flow.

Is There Some Growth For Oriental Precision & EngineeringLtd?

The only time you'd be comfortable seeing a P/E like Oriental Precision & EngineeringLtd's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 168% last year. Pleasingly, EPS has also lifted 690% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 27% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Oriental Precision & EngineeringLtd is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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

Our examination of Oriental Precision & EngineeringLtd revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. 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. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Oriental Precision & EngineeringLtd you should be aware of.

If you're unsure about the strength of Oriental Precision & EngineeringLtd'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.