Earnings Tell The Story For Soulbrain Holdings Co., Ltd. (KOSDAQ:036830) As Its Stock Soars 37%

Soulbrain Holdings Co., Ltd. (KOSDAQ:036830) shares have continued their recent momentum with a 37% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

Since its price has surged higher, Soulbrain Holdings may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.5x, since almost half of all companies in Korea have P/E ratios under 13x and even P/E's lower than 7x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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For instance, Soulbrain Holdings' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Soulbrain Holdings

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

Is There Enough Growth For Soulbrain Holdings?

In order to justify its P/E ratio, Soulbrain Holdings would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 48%. Even so, admirably EPS has lifted 136% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 29% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Soulbrain Holdings is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Soulbrain Holdings' P/E

Soulbrain Holdings shares have received a push in the right direction, but its P/E is elevated too. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Soulbrain Holdings revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Soulbrain Holdings that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.