There's Reason For Concern Over DAEYANG ELECTRIC.Co.,Ltd.'s (KOSDAQ:108380) Massive 27% Price Jump

DAEYANG ELECTRIC.Co.,Ltd. (KOSDAQ:108380) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 32%.

Even after such a large jump in price, it's still not a stretch to say that DAEYANG ELECTRIC.Co.Ltd's price-to-earnings (or "P/E") ratio of 10.1x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 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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Recent times have been advantageous for DAEYANG ELECTRIC.Co.Ltd as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for DAEYANG ELECTRIC.Co.Ltd

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

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 135% last year. Pleasingly, EPS has also lifted 123% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 27% during the coming year according to the one analyst following the company. With the market predicted to deliver 20% growth , that's a disappointing outcome.

With this information, we find it concerning that DAEYANG ELECTRIC.Co.Ltd is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On DAEYANG ELECTRIC.Co.Ltd's P/E

Its shares have lifted substantially and now DAEYANG ELECTRIC.Co.Ltd's P/E is also back up to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that DAEYANG ELECTRIC.Co.Ltd currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with DAEYANG ELECTRIC.Co.Ltd.

If you're unsure about the strength of DAEYANG ELECTRIC.Co.Ltd'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.