After Leaping 26% Samyang Foods Co., Ltd. (KRX:003230) Shares Are Not Flying Under The Radar

Samyang Foods Co., Ltd. (KRX:003230) shares have continued their recent momentum with a 26% gain in the last month alone. This latest share price bounce rounds out a remarkable 387% gain over the last twelve months.

After such a large jump in price, Samyang Foods may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 29.7x, since almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 6x are not unusual. 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, Samyang Foods 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.

View our latest analysis for Samyang Foods

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How Is Samyang Foods' Growth Trending?

In order to justify its P/E ratio, Samyang Foods 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 134%. The strong recent performance means it was also able to grow EPS by 428% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 45% over the next year. With the market only predicted to deliver 28%, the company is positioned for a stronger earnings result.

With this information, we can see why Samyang Foods is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Samyang Foods' P/E is flying high just like its stock has during the last month. 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.

We've established that Samyang Foods maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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. Take a look at our free balance sheet analysis for Samyang Foods with six simple checks on some of these key factors.

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

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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.