Daemyoung Energy Co.,Ltd's (KOSDAQ:389260) P/E Is Still On The Mark Following 31% Share Price Bounce

The Daemyoung Energy Co.,Ltd (KOSDAQ:389260) share price has done very well over the last month, posting an excellent gain of 31%. Unfortunately, despite the strong performance over the last month, the full year gain of 2.3% isn't as attractive.

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 Daemyoung EnergyLtd as a stock to avoid entirely with its 35.3x 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.

We've discovered 1 warning sign about Daemyoung EnergyLtd. View them for free.

With earnings growth that's superior to most other companies of late, Daemyoung EnergyLtd has been doing relatively well. 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.

View our latest analysis for Daemyoung EnergyLtd

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

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

The only time you'd be truly comfortable seeing a P/E as steep as Daemyoung EnergyLtd's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 27% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 71% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 54% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 21% growth forecast for the broader market.

With this information, we can see why Daemyoung EnergyLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Daemyoung EnergyLtd'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.

We've established that Daemyoung EnergyLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Daemyoung EnergyLtd that you should be aware of.

If you're unsure about the strength of Daemyoung EnergyLtd'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.