Why Investors Shouldn't Be Surprised By HyosungONBCo.,Ltd's (KOSDAQ:097870) 28% Share Price Surge

HyosungONBCo.,Ltd (KOSDAQ:097870) shares have had a really impressive month, gaining 28% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.3% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think HyosungONBCo.Ltd's price-to-earnings (or "P/E") ratio of 11.8x is worth a mention when the median P/E in Korea is similar at about 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's exceedingly strong of late, HyosungONBCo.Ltd has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for HyosungONBCo.Ltd

Although there are no analyst estimates available for HyosungONBCo.Ltd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is HyosungONBCo.Ltd's Growth Trending?

The only time you'd be comfortable seeing a P/E like HyosungONBCo.Ltd's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 193% last year. The strong recent performance means it was also able to grow EPS by 132% 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 33% shows it's about the same on an annualised basis.

In light of this, it's understandable that HyosungONBCo.Ltd's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Final Word

Its shares have lifted substantially and now HyosungONBCo.Ltd's P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that HyosungONBCo.Ltd maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for HyosungONBCo.Ltd that you need to take into consideration.

You might be able to find a better investment than HyosungONBCo.Ltd. 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.