Investors Appear Satisfied With SK oceanplant Co.,Ltd's (KRX:100090) Prospects As Shares Rocket 26%

SK oceanplant Co.,Ltd (KRX:100090) shares have continued their recent momentum with a 26% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 12x, you may consider SK oceanplantLtd as a stock to avoid entirely with its 35.3x 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.

SK oceanplantLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for SK oceanplantLtd

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

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, SK oceanplantLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 89% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 41% as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 26%, which is noticeably less attractive.

With this information, we can see why SK oceanplantLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From SK oceanplantLtd's P/E?

SK oceanplantLtd's P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that SK oceanplantLtd 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. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for SK oceanplantLtd that you should be aware of.

Of course, you might also be able to find a better stock than SK oceanplantLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.