Subdued Growth No Barrier To Pum-Tech Korea Co., Ltd (KOSDAQ:251970) With Shares Advancing 26%

Pum-Tech Korea Co., Ltd (KOSDAQ:251970) shareholders have had their patience rewarded with a 26% share price jump in the last month. The annual gain comes to 138% 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 11x, you may consider Pum-Tech Korea as a stock to avoid entirely with its 20.5x 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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Recent times have been advantageous for Pum-Tech Korea as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Pum-Tech Korea

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pum-Tech Korea.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Pum-Tech Korea's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow EPS by 80% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 18% over the next year. With the market predicted to deliver 21% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Pum-Tech Korea is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Pum-Tech Korea's P/E?

The strong share price surge has got Pum-Tech Korea's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Pum-Tech Korea's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Pum-Tech Korea with six simple checks on some of these key factors.

If you're unsure about the strength of Pum-Tech Korea's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.