Market Might Still Lack Some Conviction On INCAR FINANCIAL SERVICE Co., Ltd. (KOSDAQ:211050) Even After 27% Share Price Boost

Despite an already strong run, INCAR FINANCIAL SERVICE Co., Ltd. (KOSDAQ:211050) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 143% in the last year.

Even after such a large jump in price, INCAR FINANCIAL SERVICE's price-to-earnings (or "P/E") ratio of 11.2x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 14x and even P/E's above 28x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, INCAR FINANCIAL SERVICE has been doing very well. 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for INCAR FINANCIAL SERVICE

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

INCAR FINANCIAL SERVICE's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 61% gain to the company's bottom line. Pleasingly, EPS has also lifted 264% 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.

This is in contrast to the rest of the market, which is expected to grow by 34% over the next year, materially lower than the company's recent medium-term annualised growth rates.

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 Final Word

INCAR FINANCIAL SERVICE's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

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

If you're unsure about the strength of INCAR FINANCIAL SERVICE's 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.