What You Can Learn From Cheryong Electric Co.,Ltd.'s (KOSDAQ:033100) P/E After Its 28% Share Price Crash

Cheryong Electric Co.,Ltd. (KOSDAQ:033100) shares have had a horrible month, losing 28% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 194%.

In spite of the heavy fall in price, Cheryong ElectricLtd's price-to-earnings (or "P/E") ratio of 14.2x might still make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 11x and even P/E's below 6x are quite common. However, the P/E might be high 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. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Cheryong ElectricLtd

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 Cheryong ElectricLtd's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

Cheryong ElectricLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 244% gain to the company's bottom line. The latest three year period has also seen an excellent 2,390% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 31% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Cheryong ElectricLtd 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 Key Takeaway

Cheryong ElectricLtd's P/E hasn't come down all the way after its stock plunged. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Cheryong ElectricLtd 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.

Before you take the next step, you should know about the 1 warning sign for Cheryong ElectricLtd that we have uncovered.

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.

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