Suprema HQ Inc. (KOSDAQ:094840) Held Back By Insufficient Growth Even After Shares Climb 54%

Suprema HQ Inc. (KOSDAQ:094840) shareholders have had their patience rewarded with a 54% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 36% in the last year.

Although its price has surged higher, Suprema HQ's price-to-earnings (or "P/E") ratio of 5.6x might still make it look like a strong buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 12x and even P/E's above 25x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Earnings have risen at a steady rate over the last year for Suprema HQ, which is generally not a bad outcome. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. 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 out of favour.

See our latest analysis for Suprema HQ

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

How Is Suprema HQ's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Suprema HQ's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.6% gain to the company's bottom line. The latest three year period has also seen an excellent 47% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Suprema HQ's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Shares in Suprema HQ are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

As we suspected, our examination of Suprema HQ revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Suprema HQ that we have uncovered.

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.