Market Might Still Lack Some Conviction On Daidong Electronics Co. Ltd. (KRX:008110) Even After 90% Share Price Boost

Daidong Electronics Co. Ltd. (KRX:008110) shareholders have had their patience rewarded with a 90% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

In spite of the firm bounce in price, Daidong Electronics' price-to-earnings (or "P/E") ratio of 6.1x 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 14x and even P/E's above 26x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's exceedingly strong of late, Daidong Electronics has been doing very well. 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.

View 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.

Is There Any Growth For Daidong Electronics?

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

Retrospectively, the last year delivered an exceptional 210% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 715% in total over the last three years. 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 28% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Daidong Electronics' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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

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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Daidong Electronics has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.