There's Reason For Concern Over Semyung Electric Machinery Co.,Ltd's (KOSDAQ:017510) Massive 26% Price Jump

Despite an already strong run, Semyung Electric Machinery Co.,Ltd (KOSDAQ:017510) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 138% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Semyung Electric MachineryLtd's price-to-earnings (or "P/E") ratio of 78.4x 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 12x and even P/E's below 6x 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.

For example, consider that Semyung Electric MachineryLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite 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.

How Is Semyung Electric MachineryLtd's Growth Trending?

In order to justify its P/E ratio, Semyung Electric MachineryLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 59% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 33% shows it's an unpleasant look.

In light of this, it's alarming that Semyung Electric MachineryLtd's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Semyung Electric MachineryLtd's P/E?

Shares in Semyung Electric MachineryLtd have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Semyung Electric MachineryLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 5 warning signs for Semyung Electric MachineryLtd (2 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Semyung Electric MachineryLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com