Earnings Not Telling The Story For KEPCO Engineering & Construction Company, Inc. (KRX:052690) After Shares Rise 82%

KEPCO Engineering & Construction Company, Inc. (KRX:052690) shareholders have had their patience rewarded with a 82% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 56% in the last year.

Since its price has surged higher, KEPCO Engineering & Construction Company's price-to-earnings (or "P/E") ratio of 36.6x 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 13x and even P/E's below 7x 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.

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Recent times have been advantageous for KEPCO Engineering & Construction Company as its earnings have been rising faster 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.

View our latest analysis for KEPCO Engineering & Construction Company

Keen to find out how analysts think KEPCO Engineering & Construction Company's 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?

The only time you'd be truly comfortable seeing a P/E as steep as KEPCO Engineering & Construction Company's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 257% gain to the company's bottom line. The latest three year period has also seen an excellent 780% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 11% per year over the next three years. Meanwhile, the broader market is forecast to expand by 18% each year, which paints a poor picture.

With this information, we find it concerning that KEPCO Engineering & Construction Company is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

What We Can Learn From KEPCO Engineering & Construction Company's P/E?

Shares in KEPCO Engineering & Construction Company have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of KEPCO Engineering & Construction Company's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for KEPCO Engineering & Construction Company that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.