Market Might Still Lack Some Conviction On STX Heavy Industries Co., Ltd. (KRX:071970) Even After 32% Share Price Boost

STX Heavy Industries Co., Ltd. (KRX:071970) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. The annual gain comes to 122% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about STX Heavy Industries' P/E ratio of 12.1x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's exceedingly strong of late, STX Heavy Industries has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for STX Heavy Industries

Although there are no analyst estimates available for STX Heavy Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is STX Heavy Industries' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like STX Heavy Industries' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 109% last year. The latest three year period has also seen an excellent 2,727% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 28% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that STX Heavy Industries is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On STX Heavy Industries' P/E

STX Heavy Industries' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 STX Heavy Industries currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for STX Heavy Industries that you should be aware of.

If you're unsure about the strength of STX Heavy Industries' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.