Amorepacific Corporation's (KRX:090430) Share Price Is Still Matching Investor Opinion Despite 26% Slump

The Amorepacific Corporation (KRX:090430) share price has fared very poorly over the last month, falling by a substantial 26%. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Although its price has dipped substantially, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may still consider Amorepacific as a stock to avoid entirely with its 58.9x 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.

Amorepacific certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Amorepacific

Keen to find out how analysts think Amorepacific's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. The latest three year period has also seen an excellent 45% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 54% each year over the next three years. With the market only predicted to deliver 20% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Amorepacific 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

Amorepacific's shares may have retreated, but its P/E is still flying high. 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.

We've established that Amorepacific 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. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Amorepacific has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Amorepacific. 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).

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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.