WONIK Materials Co.,Ltd. (KOSDAQ:104830) Stocks Shoot Up 26% But Its P/E Still Looks Reasonable

WONIK Materials Co.,Ltd. (KOSDAQ:104830) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 50%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about WONIK MaterialsLtd's P/E ratio of 13.8x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 15x. 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.

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WONIK MaterialsLtd certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.

See our latest analysis for WONIK MaterialsLtd

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

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

There's an inherent assumption that a company should be matching the market for P/E ratios like WONIK MaterialsLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 43% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 18% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 20% per annum, which is not materially different.

With this information, we can see why WONIK MaterialsLtd is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On WONIK MaterialsLtd's P/E

WONIK MaterialsLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that WONIK MaterialsLtd maintains its moderate P/E off the back of its forecast growth being in line with the wider market, 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. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for WONIK MaterialsLtd you should be aware of.

Of course, you might also be able to find a better stock than WONIK MaterialsLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.