With Pearl Abyss Corp. (KOSDAQ:263750) It Looks Like You'll Get What You Pay For

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider Pearl Abyss Corp. (KOSDAQ:263750) as a stock to avoid entirely with its 41.9x 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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Pearl Abyss certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Pearl Abyss

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

Is There Enough Growth For Pearl Abyss?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 457% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 23% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 92% during the coming year according to the analysts following the company. With the market only predicted to deliver 38%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Pearl Abyss' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Pearl Abyss' 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.

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

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.