Kyungin Electronics Co., Ltd (KRX:009140) Soars 38% But It's A Story Of Risk Vs Reward

The Kyungin Electronics Co., Ltd (KRX:009140) share price has done very well over the last month, posting an excellent gain of 38%. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Even after such a large jump in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Kyungin Electronics as an attractive investment with its 7.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Kyungin Electronics has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Kyungin Electronics

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 Kyungin Electronics' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Kyungin Electronics' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. The strong recent performance means it was also able to grow EPS by 210% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 31% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Kyungin Electronics' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Kyungin Electronics' P/E

The latest share price surge wasn't enough to lift Kyungin Electronics' P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Kyungin Electronics revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for Kyungin Electronics that you should be aware of.

If these risks are making you reconsider your opinion on Kyungin Electronics, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.