Samwha Electric Co.,Ltd. (KRX:009470) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Samwha Electric Co.,Ltd. (KRX:009470) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around 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 potentially avoid with its 13.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Samwha ElectricLtd as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Samwha ElectricLtd

Want the full picture on analyst estimates for the company? Then our free report on Samwha ElectricLtd will help you uncover what's on the horizon.

How Is Samwha ElectricLtd's Growth Trending?

In order to justify its P/E ratio, Samwha ElectricLtd would need to produce impressive growth in excess of 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 two analysts covering the company suggest earnings should grow by 68% over the next year. Meanwhile, the rest of the market is forecast to only expand by 33%, which is noticeably less attractive.

With this information, we can see why Samwha ElectricLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in Samwha ElectricLtd's shares has lifted the company's P/E to a fairly high level. 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. 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.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.