Investors Appear Satisfied With Daesung Energy Co., Ltd.'s (KRX:117580) Prospects As Shares Rocket 32%

Daesung Energy Co., Ltd. (KRX:117580) shareholders have had their patience rewarded with a 32% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 3.9% isn't as attractive.

Even after such a large jump in price, it's still not a stretch to say that Daesung Energy's price-to-earnings (or "P/E") ratio of 13.9x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 13x. 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.

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Daesung Energy has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to only match most other companies over the coming period, 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.

See our latest analysis for Daesung Energy

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 Daesung Energy's earnings, revenue and cash flow.

How Is Daesung Energy's Growth Trending?

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

Retrospectively, the last year delivered a decent 5.1% gain to the company's bottom line. Pleasingly, EPS has also lifted 117% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 28% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

In light of this, it's understandable that Daesung Energy's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Daesung Energy appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 Daesung Energy revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Daesung Energy with six simple checks on some of these key factors.

You might be able to find a better investment than Daesung Energy. 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.