Why Investors Shouldn't Be Surprised By Samyang Foods Co., Ltd.'s (KRX:003230) 26% Share Price Surge

Samyang Foods Co., Ltd. (KRX:003230) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 228% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider Samyang Foods as a stock to avoid entirely with its 27.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Samyang Foods. View them for free.

Recent times have been advantageous for Samyang Foods as its earnings have been rising faster than most other companies. 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.

Check out our latest analysis for Samyang Foods

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Samyang Foods.

What Are Growth Metrics Telling Us About The High P/E?

Samyang Foods' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 115% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 388% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the twelve analysts watching the company. With the market only predicted to deliver 17% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Samyang Foods' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Samyang Foods' P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Samyang Foods' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Samyang Foods that you should be aware of.

If you're unsure about the strength of Samyang Foods' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.