UJU Electronics Co. Ltd's (KOSDAQ:065680) Shares Leap 31% Yet They're Still Not Telling The Full Story

UJU Electronics Co. Ltd (KOSDAQ:065680) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 9.5% isn't as impressive.

Although its price has surged higher, you could still be forgiven for feeling indifferent about UJU Electronics' P/E ratio of 10x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for UJU Electronics as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for UJU Electronics

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Is There Some Growth For UJU Electronics?

In order to justify its P/E ratio, UJU Electronics would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 95% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 35% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 98% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 33%, which is noticeably less attractive.

With this information, we find it interesting that UJU Electronics is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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 lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for UJU Electronics that you need to take into consideration.

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.