After Leaping 94% Sunjin Beauty Science Co.Ltd (KOSDAQ:086710) Shares Are Not Flying Under The Radar

Sunjin Beauty Science Co.Ltd (KOSDAQ:086710) shares have continued their recent momentum with a 94% gain in the last month alone. The annual gain comes to 127% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Sunjin Beauty ScienceLtd's price-to-earnings (or "P/E") ratio of 40x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Sunjin Beauty ScienceLtd has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Sunjin Beauty ScienceLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sunjin Beauty ScienceLtd.

Is There Enough Growth For Sunjin Beauty ScienceLtd?

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

Retrospectively, the last year delivered a frustrating 70% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 233% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 419% during the coming year according to the lone analyst following the company. With the market only predicted to deliver 33%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Sunjin Beauty ScienceLtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got Sunjin Beauty ScienceLtd's P/E rushing to great heights as well. 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 Sunjin Beauty ScienceLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Sunjin Beauty ScienceLtd.

You might be able to find a better investment than Sunjin Beauty ScienceLtd. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com