What You Can Learn From JUSUNG ENGINEERING Co.,Ltd.'s (KOSDAQ:036930) P/E After Its 26% Share Price Crash

The JUSUNG ENGINEERING Co.,Ltd. (KOSDAQ:036930) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop has obliterated the annual return, with the share price now down 7.6% over that longer period.

Even after such a large drop in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 12x, you may still consider JUSUNG ENGINEERINGLtd as a stock to avoid entirely with its 33x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times haven't been advantageous for JUSUNG ENGINEERINGLtd as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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

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

Retrospectively, the last year delivered a frustrating 56% decrease to the company's bottom line. Even so, admirably EPS has lifted 339% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 52% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 20% per year, which is noticeably less attractive.

With this information, we can see why JUSUNG ENGINEERINGLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On JUSUNG ENGINEERINGLtd's P/E

A significant share price dive has done very little to deflate JUSUNG ENGINEERINGLtd's very lofty 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.

We've established that JUSUNG ENGINEERINGLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for JUSUNG ENGINEERINGLtd that 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 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.

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