Genians, Inc. (KOSDAQ:263860) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Genians, Inc. (KOSDAQ:263860) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 143% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Genians may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.1x, since almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Genians as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Genians

Keen to find out how analysts think Genians' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Genians?

In order to justify its P/E ratio, Genians would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 115%. Pleasingly, EPS has also lifted 94% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 18% each year growth forecast for the broader market.

In light of this, it's alarming that Genians' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

Genians' P/E is getting right up there since its shares have risen strongly. 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 Genians currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Genians is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Genians' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.