INCAR FINANCIAL SERVICE Co., Ltd. (KOSDAQ:211050) Soars 28% But It's A Story Of Risk Vs Reward

INCAR FINANCIAL SERVICE Co., Ltd. (KOSDAQ:211050) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 117% in the last year.

Although its price has surged higher, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may still consider INCAR FINANCIAL SERVICE as a highly attractive investment with its 5.5x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for INCAR FINANCIAL SERVICE as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for INCAR FINANCIAL SERVICE

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on INCAR FINANCIAL SERVICE will help you shine a light on its historical performance.

How Is INCAR FINANCIAL SERVICE's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 141% last year. The strong recent performance means it was also able to grow EPS by 223% in total over the last three years. 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 34% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that INCAR FINANCIAL SERVICE is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Shares in INCAR FINANCIAL SERVICE are going to need a lot more upward momentum to get the company's P/E out of its slump. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that INCAR FINANCIAL SERVICE currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for INCAR FINANCIAL SERVICE with six simple checks on some of these key factors.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.