What You Can Learn From LS ELECTRIC Co., Ltd.'s (KRX:010120) P/E After Its 29% Share Price Crash

LS ELECTRIC Co., Ltd. (KRX:010120) shares have had a horrible month, losing 29% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 24%.

In spite of the heavy fall in price, LS ELECTRIC may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 19x, since almost half of all companies in Korea have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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LS ELECTRIC certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for LS ELECTRIC

Keen to find out how analysts think LS ELECTRIC's future stacks up against the industry? In that case, our free report is a great place to start .

How Is LS ELECTRIC's Growth Trending?

LS ELECTRIC's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. Pleasingly, EPS has also lifted 180% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 25% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 18% per annum growth forecast for the broader market.

In light of this, it's understandable that LS ELECTRIC'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.

What We Can Learn From LS ELECTRIC's P/E?

LS ELECTRIC's shares may have retreated, but its P/E is still flying high. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that LS ELECTRIC maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for LS ELECTRIC (1 is potentially serious!) that you need to be mindful 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.