Investors Appear Satisfied With DAEDUCK ELECTRONICS Co., Ltd.'s (KRX:353200) Prospects As Shares Rocket 25%

DAEDUCK ELECTRONICS Co., Ltd. (KRX:353200) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Since its price has surged higher, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider DAEDUCK ELECTRONICS as a stock to avoid entirely with its 65.6x P/E ratio. 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.

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DAEDUCK ELECTRONICS hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for DAEDUCK ELECTRONICS

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

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like DAEDUCK ELECTRONICS' to be considered reasonable.

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 4.9%. This means it has also seen a slide in earnings over the longer-term as EPS is down 83% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 83% per year over the next three years. With the market only predicted to deliver 18% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why DAEDUCK ELECTRONICS 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.

What We Can Learn From DAEDUCK ELECTRONICS' P/E?

DAEDUCK ELECTRONICS' P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of DAEDUCK ELECTRONICS' 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with DAEDUCK ELECTRONICS, and understanding should be part of your investment process.

You might be able to find a better investment than DAEDUCK ELECTRONICS. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.