Earnings Tell The Story For HD Hyundai Electric Co., Ltd. (KRX:267260) As Its Stock Soars 27%

Despite an already strong run, HD Hyundai Electric Co., Ltd. (KRX:267260) shares have been powering on, with a gain of 27% in the last thirty days. This latest share price bounce rounds out a remarkable 362% gain over the last twelve months.

Following the firm bounce in price, HD Hyundai Electric's price-to-earnings (or "P/E") ratio of 31.4x 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 11x 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.

Recent times have been advantageous for HD Hyundai Electric 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 HD Hyundai Electric

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

How Is HD Hyundai Electric's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 109% gain to the company's bottom line. The latest three year period has also seen an excellent 4,823% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 22% each year over the next three years. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

With this information, we can see why HD Hyundai Electric 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.

The Key Takeaway

Shares in HD Hyundai Electric have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that HD Hyundai Electric maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for HD Hyundai Electric that you need to be mindful of.

Of course, you might also be able to find a better stock than HD Hyundai Electric. 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.