Why Investors Shouldn't Be Surprised By Soop Co., Ltd.'s (KOSDAQ:067160) P/E

With a median price-to-earnings (or "P/E") ratio of close to 11x in Korea, you could be forgiven for feeling indifferent about Soop Co., Ltd.'s (KOSDAQ:067160) P/E ratio of 12.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Soop as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 Soop

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

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

In order to justify its P/E ratio, Soop would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 50%. The latest three year period has also seen an excellent 60% 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 analysts covering the company suggest earnings should grow by 14% each year over the next three years. With the market predicted to deliver 16% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why Soop is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

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.

As we suspected, our examination of Soop's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Soop with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Soop. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.