Hanmi Science Co., Ltd. (KRX:008930) Looks Just Right With A 27% Price Jump

The Hanmi Science Co., Ltd. (KRX:008930) share price has done very well over the last month, posting an excellent gain of 27%. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

Following the firm bounce in price, Hanmi Science may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 23.4x, since almost half of all companies in Korea have P/E ratios under 10x and even P/E's lower than 6x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Hanmi Science certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Hanmi Science

Although there are no analyst estimates available for Hanmi Science, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hanmi Science's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. Pleasingly, EPS has also lifted 291% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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.

With this information, we can see why Hanmi Science is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Hanmi Science's P/E?

Hanmi Science's 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 Hanmi Science 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.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Hanmi Science with six simple checks on some of these key factors.

You might be able to find a better investment than Hanmi Science. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.