Investors Appear Satisfied With Semyung Electric Machinery Co.,Ltd's (KOSDAQ:017510) Prospects As Shares Rocket 29%

Semyung Electric Machinery Co.,Ltd (KOSDAQ:017510) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 70%.

Following the firm bounce in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider Semyung Electric MachineryLtd as a stock to avoid entirely with its 22.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's exceedingly strong of late, Semyung Electric MachineryLtd has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Semyung Electric MachineryLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Semyung Electric MachineryLtd will help you shine a light on its historical performance.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 257% last year. Pleasingly, EPS has also lifted 101% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably more attractive on an annualised basis.

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

The Bottom Line On Semyung Electric MachineryLtd's P/E

Semyung Electric MachineryLtd's P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Semyung Electric MachineryLtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Semyung Electric MachineryLtd that you need to be mindful of.

If you're unsure about the strength of Semyung Electric MachineryLtd'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.