JYP Entertainment Corporation's (KOSDAQ:035900) 27% Jump Shows Its Popularity With Investors

The JYP Entertainment Corporation (KOSDAQ:035900) share price has done very well over the last month, posting an excellent gain of 27%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Following the firm bounce in price, JYP Entertainment may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 29.6x, since almost half of all companies in Korea have P/E ratios under 10x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, JYP Entertainment's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for JYP Entertainment

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

Is There Enough Growth For JYP Entertainment?

The only time you'd be truly comfortable seeing a P/E as steep as JYP Entertainment's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. Even so, admirably EPS has lifted 136% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 25% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% per year, which is noticeably less attractive.

With this information, we can see why JYP Entertainment is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From JYP Entertainment's P/E?

Shares in JYP Entertainment have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of JYP Entertainment's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for JYP Entertainment that you need to take into consideration.

You might be able to find a better investment than JYP Entertainment. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.