Korea Aerospace Industries, Ltd.'s (KRX:047810) Earnings Haven't Escaped The Attention Of Investors

Korea Aerospace Industries, Ltd.'s (KRX:047810) price-to-earnings (or "P/E") ratio of 71x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 14x and even P/E's below 6x are quite common. 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 that are retreating more than the market's of late, Korea Aerospace Industries has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Korea Aerospace Industries

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

How Is Korea Aerospace Industries' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 46% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 71% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 22% per year growth forecast for the broader market.

In light of this, it's understandable that Korea Aerospace Industries' 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 Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Korea Aerospace Industries' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Before you take the next step, you should know about the 1 warning sign for Korea Aerospace Industries that we have uncovered.

Of course, you might also be able to find a better stock than Korea Aerospace Industries. 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.