GnCenergy Co., Ltd (KOSDAQ:119850) Soars 39% But It's A Story Of Risk Vs Reward

GnCenergy Co., Ltd (KOSDAQ:119850) shares have continued their recent momentum with a 39% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Even after such a large jump in price, GnCenergy's price-to-earnings (or "P/E") ratio of 8.3x 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 29x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

GnCenergy certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for GnCenergy

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

Is There Any Growth For GnCenergy?

In order to justify its P/E ratio, GnCenergy would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 184% gain to the company's bottom line. The latest three year period has also seen an excellent 302% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 31% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that GnCenergy is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From GnCenergy's P/E?

The latest share price surge wasn't enough to lift GnCenergy's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that GnCenergy 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. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for GnCenergy (1 is potentially serious) 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.