EO Technics Co., Ltd.'s (KOSDAQ:039030) P/E Still Appears To Be Reasonable

With a price-to-earnings (or "P/E") ratio of 69.9x EO Technics Co., Ltd. (KOSDAQ:039030) may be sending very bearish signals at the moment, given that almost half of all companies in Korea have P/E ratios under 14x and even P/E's lower than 7x 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.

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EO Technics has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. It seems that many are expecting the comparatively superior earnings performance to persist, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if earnings continue to dissolve.

View our latest analysis for EO Technics

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EO Technics.

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 1.6% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 46% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 36% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 21% per year, which is noticeably less attractive.

With this information, we can see why EO Technics is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On EO Technics' P/E

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.

We've established that EO Technics maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for EO Technics with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.