Market Cool On Samwha Electric Co.,Ltd.'s (KRX:009470) Earnings Pushing Shares 30% Lower

The Samwha Electric Co.,Ltd. (KRX:009470) share price has fared very poorly over the last month, falling by a substantial 30%. Looking at the bigger picture, even after this poor month the stock is up 97% in the last year.

Even after such a large drop in price, it's still not a stretch to say that Samwha ElectricLtd's price-to-earnings (or "P/E") ratio of 11x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Samwha ElectricLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Samwha ElectricLtd

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

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

In order to justify its P/E ratio, Samwha ElectricLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 193% gain to the company's bottom line. The latest three year period has also seen a 21% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 74% over the next year. Meanwhile, the rest of the market is forecast to only expand by 35%, which is noticeably less attractive.

In light of this, it's curious that Samwha ElectricLtd's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Samwha ElectricLtd's plummeting stock price has brought its P/E right back to the rest of the market. 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 Samwha ElectricLtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Samwha ElectricLtd that you should be aware of.

If you're unsure about the strength of Samwha ElectricLtd's 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.