Samwha Electric Co.,Ltd.'s (KRX:009470) 25% Jump Shows Its Popularity With Investors

Despite an already strong run, Samwha Electric Co.,Ltd. (KRX:009470) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 42%.

Since its price has surged higher, Samwha ElectricLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 23.1x, since almost half of all companies in Korea have P/E ratios under 14x and even P/E's lower than 6x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For instance, Samwha ElectricLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Samwha ElectricLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Samwha ElectricLtd's earnings, revenue and cash flow.

How Is Samwha ElectricLtd's Growth Trending?

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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 49%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 440% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 36% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Samwha ElectricLtd is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

The strong share price surge has got Samwha ElectricLtd's P/E rushing to great heights as well. 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 Samwha ElectricLtd revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Samwha ElectricLtd has 3 warning signs we think 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.