Subdued Growth No Barrier To Korea Electric Power Industrial Development Co., Ltd (KRX:130660) With Shares Advancing 34%

The Korea Electric Power Industrial Development Co., Ltd (KRX:130660) share price has done very well over the last month, posting an excellent gain of 34%. Notwithstanding the latest gain, the annual share price return of 9.8% isn't as impressive.

After such a large jump in price, Korea Electric Power Industrial Development's price-to-earnings (or "P/E") ratio of 41.8x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. 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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As an illustration, earnings have deteriorated at Korea Electric Power Industrial Development over the last year, which is not ideal at all. 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Korea Electric Power Industrial Development

Although there are no analyst estimates available for Korea Electric Power Industrial Development, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Korea Electric Power Industrial Development?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Korea Electric Power Industrial Development's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 37% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 47% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate 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 weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Korea Electric Power Industrial Development's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Korea Electric Power Industrial Development's P/E

Shares in Korea Electric Power Industrial Development have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Korea Electric Power Industrial Development revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Korea Electric Power Industrial Development that you should be aware of.

If these risks are making you reconsider your opinion on Korea Electric Power Industrial Development, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.