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華爾街日報GAON CABLE Co., Ltd.'s (KRX:000500) Share Price Could Signal Some Risk
When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider GAON CABLE Co., Ltd. (KRX:000500) as a stock to avoid entirely with its 27.8x 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.
Earnings have risen firmly for GAON CABLE recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for GAON CABLE
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 GAON CABLE's to be considered reasonable.
If we review the last year of earnings growth, the company posted a worthy increase of 14%. Still, lamentably EPS has fallen 18% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Comparing that to the market, which is predicted to deliver 39% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it's alarming that GAON CABLE'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 very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
What We Can Learn From GAON CABLE's P/E?
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of GAON CABLE revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider and we've discovered 3 warning signs for GAON CABLE (2 are potentially serious!) that you should be aware of before investing here.
If these risks are making you reconsider your opinion on GAON CABLE, 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.