Earnings Not Telling The Story For KSIGN Co.,Ltd. (KOSDAQ:192250) After Shares Rise 44%

KSIGN Co.,Ltd. (KOSDAQ:192250) shares have continued their recent momentum with a 44% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 6.6% isn't as impressive.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 12x, you may consider KSIGNLtd as a stock to avoid entirely with its 51.9x P/E ratio. 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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For instance, KSIGNLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for KSIGNLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on KSIGNLtd will help you shine a light on its historical performance.

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

KSIGNLtd's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 37% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 65% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 28% 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 KSIGNLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

KSIGNLtd'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.

We've established that KSIGNLtd currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with KSIGNLtd (at least 1 which is potentially serious), and understanding them should be part of your investment process.

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.