UJU Electronics Co. Ltd (KOSDAQ:065680) Stock Rockets 27% As Investors Are Less Pessimistic Than Expected

UJU Electronics Co. Ltd (KOSDAQ:065680) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 157% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think UJU Electronics' price-to-earnings (or "P/E") ratio of 13.9x is worth a mention when the median P/E in Korea is similar at about 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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UJU Electronics certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for UJU Electronics

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

The only time you'd be comfortable seeing a P/E like UJU Electronics' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 139% last year. As a result, it also grew EPS by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 27% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that UJU Electronics' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On UJU Electronics' P/E

UJU Electronics' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 UJU Electronics currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for UJU Electronics that we have uncovered.

You might be able to find a better investment than UJU Electronics. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.