HD Hyundai Electric Co., Ltd.'s (KRX:267260) Stock Retreats 27% But Earnings Haven't Escaped The Attention Of Investors

HD Hyundai Electric Co., Ltd. (KRX:267260) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 162%.

Even after such a large drop in price, HD Hyundai Electric may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 22.9x, since almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 6x are not unusual. 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. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See 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.

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.

Taking a look back first, we see that the company grew earnings per share by an impressive 207% last year. The strong recent performance means it was also able to grow EPS by 7,728% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 17% 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?

A significant share price dive has done very little to deflate HD Hyundai Electric's very lofty 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.

As we suspected, our examination of HD Hyundai Electric's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for HD Hyundai Electric with six simple checks on some of these key factors.

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.