HD Hyundai Electric Co., Ltd.'s (KRX:267260) P/E Is Still On The Mark Following 32% Share Price Bounce

Despite an already strong run, HD Hyundai Electric Co., Ltd. (KRX:267260) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days were the cherry on top of the stock's 371% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, HD Hyundai Electric's price-to-earnings (or "P/E") ratio of 33.6x 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 13x 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, HD Hyundai Electric has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for HD Hyundai Electric

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Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like HD Hyundai Electric's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 59%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 29% per annum during the coming three years according to the ten analysts following the company. That's shaping up to be materially higher than the 19% each 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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From HD Hyundai Electric's P/E?

Shares in HD Hyundai Electric have built up some good momentum lately, which has really inflated its P/E. 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 HD Hyundai Electric 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for HD Hyundai Electric (2 are significant) you should be aware of.

If these risks are making you reconsider your opinion on HD Hyundai Electric, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.