Market Might Still Lack Some Conviction On Cheryong Electric Co.,Ltd. (KOSDAQ:033100) Even After 25% Share Price Boost

Cheryong Electric Co.,Ltd. (KOSDAQ:033100) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 114% in the last year.

Although its price has surged higher, Cheryong ElectricLtd's price-to-earnings (or "P/E") ratio of 10.2x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 15x and even P/E's above 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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 degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Cheryong ElectricLtd

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

How Is Cheryong ElectricLtd's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Cheryong ElectricLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 471% last year. The strong recent performance means it was also able to grow EPS by 650% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 36% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Cheryong ElectricLtd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Cheryong ElectricLtd's P/E?

Despite Cheryong ElectricLtd's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Cheryong ElectricLtd revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Cheryong ElectricLtd you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Cheryong ElectricLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.