Market Participants Recognise Dongsung FineTec Co., Ltd.'s (KOSDAQ:033500) Earnings Pushing Shares 30% Higher

Explore Dongsung FineTec's Fair Values from the Community and select yours

Dongsung FineTec Co., Ltd. (KOSDAQ:033500) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The annual gain comes to 115% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider Dongsung FineTec as a stock to avoid entirely with its 21.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Dongsung FineTec 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Is There Enough Growth For Dongsung FineTec?

Dongsung FineTec's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10.0%. This was backed up an excellent period prior to see EPS up by 123% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 22% per year over the next three years. That's shaping up to be materially higher than the 17% per year growth forecast for the broader market.

With this information, we can see why Dongsung FineTec is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Dongsung FineTec's P/E is flying high just like its stock has during the last month. 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 Dongsung FineTec 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Dongsung FineTec that you should be aware of.

If these risks are making you reconsider your opinion on Dongsung FineTec, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.