SAMYOUNG M-Tek Co., Ltd's (KOSDAQ:054540) 27% Share Price Surge Not Quite Adding Up

SAMYOUNG M-Tek Co., Ltd (KOSDAQ:054540) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about SAMYOUNG M-Tek's P/E ratio of 11.8x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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We'd have to say that with no tangible growth over the last year, SAMYOUNG M-Tek's earnings have been unimpressive. One possibility is that the P/E is moderate because investors think this benign earnings growth rate might not be enough to outperform the broader market in the near future. 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.

See our latest analysis for SAMYOUNG M-Tek

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

How Is SAMYOUNG M-Tek's Growth Trending?

The only time you'd be comfortable seeing a P/E like SAMYOUNG M-Tek's is when the company's growth is tracking the market closely.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Likewise, not much has changed from three years ago as earnings have been stuck during that whole time. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it interesting that SAMYOUNG M-Tek is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now SAMYOUNG M-Tek'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 SAMYOUNG M-Tek currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 4 warning signs for SAMYOUNG M-Tek (1 can't be ignored!) that you should be aware of.

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.