Snt Dynamics Co.,Ltd.'s (KRX:003570) 26% Price Boost Is Out Of Tune With Earnings

Despite an already strong run, Snt Dynamics Co.,Ltd. (KRX:003570) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 160% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think Snt DynamicsLtd's price-to-earnings (or "P/E") ratio of 10.9x is worth a mention when the median P/E in Korea is similar at about 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Snt DynamicsLtd as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

View our latest analysis for Snt DynamicsLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Snt DynamicsLtd.

Does Growth Match The P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 79% last year. Still, incredibly EPS has fallen 5.3% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 8.9% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 20% each year, which paints a poor picture.

With this information, we find it concerning that Snt DynamicsLtd 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 Snt DynamicsLtd's P/E

Snt DynamicsLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of Snt DynamicsLtd's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Snt DynamicsLtd you should know about.

Of course, you might also be able to find a better stock than Snt DynamicsLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.