What YeaRimDang Publishing Co., Ltd.'s (KOSDAQ:036000) 72% Share Price Gain Is Not Telling You

YeaRimDang Publishing Co., Ltd. (KOSDAQ:036000) shares have had a really impressive month, gaining 72% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 56% in the last year.

After such a large jump in price, YeaRimDang Publishing may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 20x, since almost half of all companies in Korea have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, YeaRimDang Publishing's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for YeaRimDang Publishing

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 YeaRimDang Publishing's earnings, revenue and cash flow.

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

YeaRimDang Publishing's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 69%. As a result, earnings from three years ago have also fallen 97% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 32% shows it's an unpleasant look.

With this information, we find it concerning that YeaRimDang Publishing is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On YeaRimDang Publishing's P/E

Shares in YeaRimDang Publishing have built up some good momentum lately, which has really inflated its P/E. 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 YeaRimDang Publishing currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 3 warning signs for YeaRimDang Publishing (1 is concerning!) that you need to take into consideration.

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.