Optimistic Investors Push LS ELECTRIC Co., Ltd. (KRX:010120) Shares Up 29% But Growth Is Lacking

LS ELECTRIC Co., Ltd. (KRX:010120) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Even after such a large jump in price, there still wouldn't be many who think LS ELECTRIC's price-to-earnings (or "P/E") ratio of 13.9x is worth a mention when the median P/E in Korea is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

LS ELECTRIC certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 LS ELECTRIC

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

Is There Some Growth For LS ELECTRIC?

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

Retrospectively, the last year delivered an exceptional 82% gain to the company's bottom line. The latest three year period has also seen an excellent 128% 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.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 18% over the next year. With the market predicted to deliver 37% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that LS ELECTRIC's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now LS ELECTRIC's P/E is also back up 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.

Our examination of LS ELECTRIC's analyst forecasts revealed that its inferior earnings outlook 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 aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for LS ELECTRIC that you should be aware of.

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

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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.