Shareholders Should Be Pleased With Korea Aerospace Industries, Ltd.'s (KRX:047810) Price

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 14x, you may consider Korea Aerospace Industries, Ltd. (KRX:047810) as a stock to avoid entirely with its 55.2x P/E ratio. 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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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.

Does Growth Match The High P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 96% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 39% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 18% each year growth forecast for the broader market.

With this information, we can see why Korea Aerospace Industries is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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.

It is also worth noting that we have found 2 warning signs for Korea Aerospace Industries that you need to take into consideration.

You might be able to find a better investment than Korea Aerospace Industries. 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.