VITZROCELL Co.,Ltd.'s (KOSDAQ:082920) 29% Price Boost Is Out Of Tune With Earnings

VITZROCELL Co.,Ltd. (KOSDAQ:082920) shareholders have had their patience rewarded with a 29% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Since its price has surged higher, given around half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider VITZROCELLLtd as a stock to potentially avoid with its 15.5x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

VITZROCELLLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for VITZROCELLLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on VITZROCELLLtd.

Does Growth Match The High P/E?

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

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. However, a few strong years before that means that it was still able to grow EPS by an impressive 111% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the three analysts following the company. With the market predicted to deliver 34% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that VITZROCELLLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On VITZROCELLLtd's P/E

VITZROCELLLtd's P/E is getting right up there since its shares have risen strongly. 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 VITZROCELLLtd currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for VITZROCELLLtd with six simple checks.

If you're unsure about the strength of VITZROCELLLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.