KEPCO Engineering & Construction Company, Inc.'s (KRX:052690) Business Is Yet to Catch Up With Its Share Price

KEPCO Engineering & Construction Company, Inc.'s (KRX:052690) price-to-earnings (or "P/E") ratio of 73.2x 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 12x and even P/E's below 6x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, KEPCO Engineering & Construction Company 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for KEPCO Engineering & Construction Company

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Is There Enough Growth For KEPCO Engineering & Construction Company?

There's an inherent assumption that a company should far outperform the market for P/E ratios like KEPCO Engineering & Construction Company's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.5% last year. The latest three year period has also seen an excellent 82% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the six analysts watching the company. That's shaping up to be similar to the 19% each year growth forecast for the broader market.

With this information, we find it interesting that KEPCO Engineering & Construction Company is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On KEPCO Engineering & Construction Company's P/E

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.

We've established that KEPCO Engineering & Construction Company currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for KEPCO Engineering & Construction Company with six simple checks.

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.