Getting In Cheap On ST Pharm Co.,Ltd. (KOSDAQ:237690) Might Be Difficult

With a price-to-earnings (or "P/E") ratio of 58.1x ST Pharm Co.,Ltd. (KOSDAQ:237690) may be sending very bearish signals at the moment, given that almost half of all companies in Korea have P/E ratios under 11x 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.

With earnings growth that's superior to most other companies of late, ST PharmLtd has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for ST PharmLtd

Keen to find out how analysts think ST PharmLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is ST PharmLtd's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 175% last year. The strong recent performance means it was also able to grow EPS by 681% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 47% as estimated by the ten analysts watching the company. With the market only predicted to deliver 30%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that ST PharmLtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From ST PharmLtd's 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.

As we suspected, our examination of ST PharmLtd'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. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for ST PharmLtd with six simple checks on some of these key factors.

If you're unsure about the strength of ST PharmLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.