After Leaping 26% Wonik QnC Corporation (KOSDAQ:074600) Shares Are Not Flying Under The Radar

Wonik QnC Corporation (KOSDAQ:074600) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

Since its price has surged higher, Wonik QnC's price-to-earnings (or "P/E") ratio of 23.2x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Wonik QnC has been struggling lately as its earnings have declined faster 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Wonik QnC

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

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. Even so, admirably EPS has lifted 48% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 37% over the next year. That's shaping up to be materially higher than the 31% growth forecast for the broader market.

With this information, we can see why Wonik QnC 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 Key Takeaway

Wonik QnC's P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Wonik QnC'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. 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 Wonik QnC (1 is a bit concerning) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.