Stock Analysis

Optimistic Investors Push Green Cross Holdings Corporation (KRX:005250) Shares Up 63% But Growth Is Lacking

KOSE:A005250
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Green Cross Holdings Corporation (KRX:005250) shareholders would be excited to see that the share price has had a great month, posting a 63% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 69% in the last year.

Following the firm bounce in price, Green Cross Holdings may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33x, since almost half of all companies in Korea have P/E ratios under 18x and even P/E's lower than 10x 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.

Green Cross Holdings has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Green Cross Holdings

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KOSE:A005250 Price Based on Past Earnings November 28th 2020
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 Green Cross Holdings' earnings, revenue and cash flow.

How Is Green Cross Holdings' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Green Cross Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 9.4% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 20% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 40% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Green Cross Holdings' P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Green Cross Holdings' P/E

The strong share price surge has got Green Cross Holdings' 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.

Our examination of Green Cross Holdings revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Green Cross Holdings (2 make us uncomfortable) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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Valuation is complex, but we're helping make it simple.

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This article by Simply Wall St is general in nature. 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.
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