DAEYANG ELECTRIC.Co.,Ltd. (KOSDAQ:108380) Soars 26% But It's A Story Of Risk Vs Reward

DAEYANG ELECTRIC.Co.,Ltd. (KOSDAQ:108380) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 128% in the last year.

Although its price has surged higher, DAEYANG ELECTRIC.Co.Ltd's price-to-earnings (or "P/E") ratio of 11.3x 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 14x and even P/E's above 30x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's exceedingly strong of late, DAEYANG ELECTRIC.Co.Ltd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for DAEYANG ELECTRIC.Co.Ltd

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 109%. Pleasingly, EPS has also lifted 352% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 28% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that DAEYANG ELECTRIC.Co.Ltd's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From DAEYANG ELECTRIC.Co.Ltd's P/E?

The latest share price surge wasn't enough to lift DAEYANG ELECTRIC.Co.Ltd's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that DAEYANG ELECTRIC.Co.Ltd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for DAEYANG ELECTRIC.Co.Ltd with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.