GH Advanced Materials Inc. (KOSDAQ:130500) Looks Just Right With A 46% Price Jump

GH Advanced Materials Inc. (KOSDAQ:130500) shareholders have had their patience rewarded with a 46% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider GH Advanced Materials as a stock to avoid entirely with its 23.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

As an illustration, earnings have deteriorated at GH Advanced Materials over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for GH Advanced Materials

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on GH Advanced Materials' earnings, revenue and cash flow.

How Is GH Advanced Materials' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. Even so, admirably EPS has lifted 282% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is only predicted to deliver 31% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that GH Advanced Materials' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

GH Advanced Materials' P/E is flying high just like its stock has during the last month. 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.

We've established that GH Advanced Materials maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for GH Advanced Materials (2 are a bit concerning!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.