A Piece Of The Puzzle Missing From Cheryong Electric Co.,Ltd.'s (KOSDAQ:033100) 29% Share Price Climb

Cheryong Electric Co.,Ltd. (KOSDAQ:033100) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 160% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Cheryong ElectricLtd's price-to-earnings (or "P/E") ratio of 10.4x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Cheryong ElectricLtd as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Cheryong ElectricLtd

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

Does Growth Match The P/E?

Cheryong ElectricLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 106%. The strong recent performance means it was also able to grow EPS by 5,195% in total over the last three years. 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 33% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Cheryong ElectricLtd 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 Bottom Line On Cheryong ElectricLtd's P/E

Its shares have lifted substantially and now Cheryong ElectricLtd's P/E is also back up to the market median. 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 Cheryong ElectricLtd 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. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Cheryong ElectricLtd 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.