hyungji Elite Co., Ltd. (KRX:093240) Surges 45% Yet Its Low P/E Is No Reason For Excitement

hyungji Elite Co., Ltd. (KRX:093240) shareholders have had their patience rewarded with a 45% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

Even after such a large jump in price, hyungji Elite's price-to-earnings (or "P/E") ratio of 8.1x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 12x and even P/E's above 23x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, hyungji Elite has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for hyungji Elite

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on hyungji Elite will help you shine a light on its historical performance.

How Is hyungji Elite's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as hyungji Elite's 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 218% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 33% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why hyungji Elite is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On hyungji Elite's P/E

The latest share price surge wasn't enough to lift hyungji Elite's P/E close to the market median. 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.

As we suspected, our examination of hyungji Elite revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for hyungji Elite that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.