Further Upside For NOROO Holdings Co., Ltd. (KRX:000320) Shares Could Introduce Price Risks After 28% Bounce

NOROO Holdings Co., Ltd. (KRX:000320) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 124% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, NOROO Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.9x, since almost half of all companies in Korea have P/E ratios greater than 15x and even P/E's higher than 31x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Earnings have risen firmly for NOROO Holdings recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

See our latest analysis for NOROO Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on NOROO Holdings' earnings, revenue and cash flow.

How Is NOROO Holdings' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like NOROO Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 1,234% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 30% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that NOROO Holdings is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From NOROO Holdings' P/E?

NOROO Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

We've established that NOROO Holdings currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware NOROO Holdings is showing 3 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of NOROO Holdings' 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.