Hanwha Aerospace Co., Ltd. (KRX:012450) Stocks Pounded By 26% But Not Lagging Market On Growth Or Pricing

Hanwha Aerospace Co., Ltd. (KRX:012450) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 104% in the last twelve months.

Even after such a large drop in price, Hanwha Aerospace may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 20x, since almost half of all companies in Korea have P/E ratios under 10x and even P/E's lower than 6x 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 lofty.

With earnings growth that's superior to most other companies of late, Hanwha Aerospace has been doing relatively well. 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.

View our latest analysis for Hanwha Aerospace

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

Is There Enough Growth For Hanwha Aerospace?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Hanwha Aerospace's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 247% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 25% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that Hanwha Aerospace'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 Bottom Line On Hanwha Aerospace's P/E

Hanwha Aerospace's shares may have retreated, but its P/E is still flying high. 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 Hanwha Aerospace 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Hanwha Aerospace is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.