Market Participants Recognise STX Engine Co.,Ltd.'s (KRX:077970) Earnings Pushing Shares 32% Higher

STX Engine Co.,Ltd. (KRX:077970) shares have had a really impressive month, gaining 32% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 78%.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider STX EngineLtd as a stock to avoid entirely with its 62.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

We've discovered 3 warning signs about STX EngineLtd. View them for free.

Recent times have been advantageous for STX EngineLtd 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for STX EngineLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on STX EngineLtd.

How Is STX EngineLtd's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 272% last year. The strong recent performance means it was also able to grow EPS by 17,065% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 105% over the next year. That's shaping up to be materially higher than the 20% growth forecast for the broader market.

In light of this, it's understandable that STX EngineLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

STX EngineLtd's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that STX EngineLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Plus, you should also learn about these 3 warning signs we've spotted with STX EngineLtd (including 2 which are a bit unpleasant).

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

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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.