Wysiwyg Studios Co., Ltd. (KOSDAQ:299900) Stock Rockets 45% As Investors Are Less Pessimistic Than Expected

Wysiwyg Studios Co., Ltd. (KOSDAQ:299900) shares have continued their recent momentum with a 45% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 44% in the last twelve months.

After such a large jump in price, Wysiwyg Studios' price-to-earnings (or "P/E") ratio of 22.4x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 11x and even P/E's below 6x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Wysiwyg Studios' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Wysiwyg Studios

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Wysiwyg Studios will help you shine a light on its historical performance.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Wysiwyg Studios would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Wysiwyg Studios' P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

The strong share price surge has got Wysiwyg Studios' P/E rushing to great heights as well. 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.

We've established that Wysiwyg Studios currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Wysiwyg Studios is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Wysiwyg Studios. 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.