The Price Is Right For HD HYUNDAI Marine Solution CO.,LTD. (KRX:443060) Even After Diving 27%

HD HYUNDAI Marine Solution CO.,LTD. (KRX:443060) shares have had a horrible month, losing 27% after a relatively good period beforehand. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Although its price has dipped substantially, HD HYUNDAI Marine SolutionLTD's price-to-earnings (or "P/E") ratio of 33.4x might still 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 12x 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 earnings growth that's superior to most other companies of late, HD HYUNDAI Marine SolutionLTD has been doing relatively well. 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.

See our latest analysis for HD HYUNDAI Marine SolutionLTD

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

Is There Enough Growth For HD HYUNDAI Marine SolutionLTD?

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

Retrospectively, the last year delivered an exceptional 32% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 92% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 21% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that HD HYUNDAI Marine SolutionLTD's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

A significant share price dive has done very little to deflate HD HYUNDAI Marine SolutionLTD's very lofty P/E. 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.

As we suspected, our examination of HD HYUNDAI Marine SolutionLTD'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. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for HD HYUNDAI Marine SolutionLTD with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of HD HYUNDAI Marine SolutionLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.