Hyosung Heavy Industries Corporation (KRX:298040) Stocks Shoot Up 45% But Its P/E Still Looks Reasonable

The Hyosung Heavy Industries Corporation (KRX:298040) share price has done very well over the last month, posting an excellent gain of 45%. This latest share price bounce rounds out a remarkable 385% gain over the last twelve months.

After such a large jump in price, Hyosung Heavy Industries may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 49.7x, since almost half of all companies in Korea have P/E ratios under 14x and even P/E's lower than 7x 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.

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With its earnings growth in positive territory compared to the declining earnings of most other companies, Hyosung Heavy Industries 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Hyosung Heavy Industries

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 167% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 2,232% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 30% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

With this information, we can see why Hyosung Heavy Industries 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 Final Word

Hyosung Heavy Industries' P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Hyosung Heavy Industries 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.

It is also worth noting that we have found 1 warning sign for Hyosung Heavy Industries that you need to take into consideration.

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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.