There's Reason For Concern Over HD HYUNDAI Marine Solution CO.,LTD.'s (KRX:443060) Massive 25% Price Jump

HD HYUNDAI Marine Solution CO.,LTD. (KRX:443060) shares have continued their recent momentum with a 25% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Since its price has surged higher, HD HYUNDAI Marine SolutionLTD's price-to-earnings (or "P/E") ratio of 36.7x 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 11x and even P/E's below 6x are quite common. 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.

HD HYUNDAI Marine SolutionLTD certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View 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.

Does Growth Match The High P/E?

In order to justify its P/E ratio, HD HYUNDAI Marine SolutionLTD would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 32%. Pleasingly, EPS has also lifted 93% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 30% over the next year. With the market predicted to deliver 34% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that HD HYUNDAI Marine SolutionLTD is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

Shares in HD HYUNDAI Marine SolutionLTD 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.

Our examination of HD HYUNDAI Marine SolutionLTD's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for HD HYUNDAI Marine SolutionLTD with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than HD HYUNDAI Marine SolutionLTD. 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.