Why Investors Shouldn't Be Surprised By Hyosung Heavy Industries Corporation's (KRX:298040) 34% Share Price Surge

Despite an already strong run, Hyosung Heavy Industries Corporation (KRX:298040) shares have been powering on, with a gain of 34% in the last thirty days. The last month tops off a massive increase of 163% in the last year.

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 34.6x, since almost half of all companies in Korea have P/E ratios under 10x and even P/E's lower than 6x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been advantageous for Hyosung Heavy Industries 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Hyosung Heavy Industries

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

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

Hyosung Heavy Industries' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 118%. The strong recent performance means it was also able to grow EPS by 248% 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 ten analysts covering the company suggest earnings should grow by 42% each year over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

With this information, we can see why Hyosung Heavy Industries 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 Hyosung Heavy Industries' P/E?

Shares in Hyosung Heavy Industries have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. 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.

It is also worth noting that we have found 2 warning signs for Hyosung Heavy Industries (1 makes us a bit uncomfortable!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Hyosung Heavy Industries. 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.