Investors Still Aren't Entirely Convinced By S&D Co., Ltd's (KOSDAQ:260970) Earnings Despite 31% Price Jump

S&D Co., Ltd (KOSDAQ:260970) shares have continued their recent momentum with a 31% gain in the last month alone. The annual gain comes to 204% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about S&D's P/E ratio of 10.3x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for S&D as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

Check out our latest analysis for S&D

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

Does Growth Match The P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 80%. The latest three year period has also seen an excellent 131% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 44% over the next year. Meanwhile, the rest of the market is forecast to only expand by 33%, which is noticeably less attractive.

In light of this, it's curious that S&D's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From S&D's P/E?

S&D's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 S&D currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for S&D that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.