SeA Mechanics Co., Ltd's (KOSDAQ:396300) Share Price Matching Investor Opinion

With a price-to-earnings (or "P/E") ratio of 28x SeA Mechanics Co., Ltd (KOSDAQ:396300) may be sending very bearish signals at the moment, given that almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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SeA Mechanics hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for SeA Mechanics

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

Is There Enough Growth For SeA Mechanics?

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

Retrospectively, the last year delivered a frustrating 60% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 66% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 214% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 20%, which is noticeably less attractive.

With this information, we can see why SeA Mechanics 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.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of SeA Mechanics' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with SeA Mechanics.

Of course, you might also be able to find a better stock than SeA Mechanics. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.