After Leaping 32% Samwha Electric Co.,Ltd. (KRX:009470) Shares Are Not Flying Under The Radar

Those holding Samwha Electric Co.,Ltd. (KRX:009470) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 222% in the last year.

Following the firm bounce in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider Samwha ElectricLtd as a stock to avoid entirely with its 24.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Samwha ElectricLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Samwha ElectricLtd

Keen to find out how analysts think Samwha ElectricLtd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Samwha ElectricLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 91% last year. As a result, it also grew EPS by 5.9% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 52% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 16% per annum, which is noticeably less attractive.

In light of this, it's understandable that Samwha ElectricLtd's 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.

The Key Takeaway

Samwha ElectricLtd's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Samwha ElectricLtd's 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Samwha ElectricLtd.

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.