Hanwha Ocean Co., Ltd. (KRX:042660) Looks Just Right With A 31% Price Jump

Hanwha Ocean Co., Ltd. (KRX:042660) shares have continued their recent momentum with a 31% gain in the last month alone. This latest share price bounce rounds out a remarkable 373% gain over the last twelve months.

After such a large jump in price, Hanwha Ocean may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 50.6x, since almost half of all companies in Korea have P/E ratios under 14x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With its earnings growth in positive territory compared to the declining earnings of most other companies, Hanwha Ocean has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Hanwha Ocean

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

Does Growth Match The High P/E?

In order to justify its P/E ratio, Hanwha Ocean would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 45%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 25% per year over the next three years. With the market only predicted to deliver 19% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Hanwha Ocean's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Hanwha Ocean's P/E is flying high just like its stock has during the last month. 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 Hanwha Ocean 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. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Hanwha Ocean has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

You might be able to find a better investment than Hanwha Ocean. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.