TYM Corporation (KRX:002900) Soars 37% But It's A Story Of Risk Vs Reward

TYM Corporation (KRX:002900) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

In spite of the firm bounce in price, TYM may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.2x, since almost half of all companies in Korea have P/E ratios greater than 11x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

For example, consider that TYM's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for TYM

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

Is There Any Growth For TYM?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 48%. Still, the latest three year period has seen an excellent 175% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 27% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that TYM's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

Shares in TYM are going to need a lot more upward momentum to get the company's P/E out of its slump. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that TYM 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.

And what about other risks? Every company has them, and we've spotted 4 warning signs for TYM (of which 1 is a bit unpleasant!) you should know about.

If these risks are making you reconsider your opinion on TYM, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.