CHEMTRONICS.Co.,Ltd.'s (KOSDAQ:089010) 26% Jump Shows Its Popularity With Investors

CHEMTRONICS.Co.,Ltd. (KOSDAQ:089010) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

After such a large jump in price, CHEMTRONICS.Co.Ltd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 27.7x, since almost half of all companies in Korea have P/E ratios under 14x and even P/E's lower than 7x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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With earnings that are retreating more than the market's of late, CHEMTRONICS.Co.Ltd has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for CHEMTRONICS.Co.Ltd

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

How Is CHEMTRONICS.Co.Ltd's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like CHEMTRONICS.Co.Ltd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 41% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 76% over the next year. With the market only predicted to deliver 32%, the company is positioned for a stronger earnings result.

With this information, we can see why CHEMTRONICS.Co.Ltd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From CHEMTRONICS.Co.Ltd's P/E?

Shares in CHEMTRONICS.Co.Ltd have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of CHEMTRONICS.Co.Ltd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - CHEMTRONICS.Co.Ltd has 1 warning sign we think you should be aware of.

You might be able to find a better investment than CHEMTRONICS.Co.Ltd. 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.