Some Shareholders Feeling Restless Over CLIO Cosmetics Co.,Ltd's (KOSDAQ:237880) P/E Ratio

With a price-to-earnings (or "P/E") ratio of 19.9x CLIO Cosmetics Co.,Ltd (KOSDAQ:237880) may be sending very bearish signals at the moment, given that almost half of all companies in Korea have P/E ratios under 13x and even P/E's lower than 7x 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.

CLIO CosmeticsLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for CLIO CosmeticsLtd

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

How Is CLIO CosmeticsLtd's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like CLIO CosmeticsLtd's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 167%. The strong recent performance means it was also able to grow EPS by 175% 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.

Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the eight analysts watching the company. That's shaping up to be similar to the 19% per year growth forecast for the broader market.

With this information, we find it interesting that CLIO CosmeticsLtd is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

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.

We've established that CLIO CosmeticsLtd currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - CLIO CosmeticsLtd has 1 warning sign we think 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.