CJ Corporation's (KRX:001040) Share Price Matching Investor Opinion

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 12x, you may consider CJ Corporation (KRX:001040) as a stock to avoid entirely with its 21.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings that are retreating more than the market's of late, CJ has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for CJ

Want the full picture on analyst estimates for the company? Then our free report on CJ will help you uncover what's on the horizon.

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

The only time you'd be truly comfortable seeing a P/E as steep as CJ's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 3.6% decrease to the company's bottom line. Even so, admirably EPS has lifted 125% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 86% as estimated by the seven analysts watching the company. With the market only predicted to deliver 28%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that CJ's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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 CJ maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for CJ (1 is a bit unpleasant!) that you should be aware of.

You might be able to find a better investment than CJ. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.