Why Investors Shouldn't Be Surprised By Samhwa Paints Industrial Co., Ltd.'s (KRX:000390) 25% Share Price Surge

Despite an already strong run, Samhwa Paints Industrial Co., Ltd. (KRX:000390) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 39%.

Although its price has surged higher, it's still not a stretch to say that Samhwa Paints Industrial's price-to-earnings (or "P/E") ratio of 13.4x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 13x. 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.

Samhwa Paints Industrial certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

See our latest analysis for Samhwa Paints Industrial

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 Samhwa Paints Industrial's earnings, revenue and cash flow.

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

Samhwa Paints Industrial's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 189% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 133% 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.

It's interesting to note that the rest of the market is similarly expected to grow by 30% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

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

The Final Word

Samhwa Paints Industrial's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Samhwa Paints Industrial maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

You need to take note of risks, for example - Samhwa Paints Industrial has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If these risks are making you reconsider your opinion on Samhwa Paints Industrial, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.