Pinning Down JUSUNG ENGINEERING Co.,Ltd.'s (KOSDAQ:036930) P/E Is Difficult Right Now

JUSUNG ENGINEERING Co.,Ltd.'s (KOSDAQ:036930) price-to-earnings (or "P/E") ratio of 14.9x might make it look like a 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been advantageous for JUSUNG ENGINEERINGLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is JUSUNG ENGINEERINGLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 296%. The latest three year period has also seen an excellent 81% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 8.8% during the coming year according to the eight analysts following the company. With the market predicted to deliver 34% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that JUSUNG ENGINEERINGLtd is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

Our examination of JUSUNG ENGINEERINGLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for JUSUNG ENGINEERINGLtd with six simple checks will allow you to discover any risks that could be an issue.

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 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.