Market Participants Recognise Samsung Electro-Mechanics Co., Ltd.'s (KRX:009150) Earnings

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider Samsung Electro-Mechanics Co., Ltd. (KRX:009150) as a stock to avoid entirely with its 21.4x P/E ratio. 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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Samsung Electro-Mechanics certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Samsung Electro-Mechanics

Want the full picture on analyst estimates for the company? Then our free report on Samsung Electro-Mechanics will help you uncover what's on the horizon.

Is There Enough Growth For Samsung Electro-Mechanics?

The only time you'd be truly comfortable seeing a P/E as steep as Samsung Electro-Mechanics' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a decent 6.9% gain to the company's bottom line. Still, lamentably EPS has fallen 50% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 22% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 18% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Samsung Electro-Mechanics' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Samsung Electro-Mechanics' P/E?

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 Samsung Electro-Mechanics' 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Samsung Electro-Mechanics that you should be aware of.

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.