Daidong Electronics Co. Ltd.'s (KRX:008110) Shares Leap 26% Yet They're Still Not Telling The Full Story

Despite an already strong run, Daidong Electronics Co. Ltd. (KRX:008110) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 79%.

In spite of the firm bounce in price, Daidong Electronics' price-to-earnings (or "P/E") ratio of 7.8x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 13x and even P/E's above 27x 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 limited.

Daidong Electronics certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Daidong Electronics

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

How Is Daidong Electronics' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Daidong Electronics' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 210% last year. Pleasingly, EPS has also lifted 715% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 33% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Daidong Electronics' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Daidong Electronics' shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Daidong Electronics revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Daidong Electronics (1 is concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Daidong Electronics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.