Nasdaq
華爾街日報Optimistic Investors Push DIGITAL CHOSUN Inc. (KOSDAQ:033130) Shares Up 25% But Growth Is Lacking
DIGITAL CHOSUN Inc. (KOSDAQ:033130) shareholders have had their patience rewarded with a 25% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.
Following the firm bounce in price, DIGITAL CHOSUN's price-to-earnings (or "P/E") ratio of 16.1x might make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's exceedingly strong of late, DIGITAL CHOSUN has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for DIGITAL CHOSUN
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, DIGITAL CHOSUN would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 56% last year. Pleasingly, EPS has also lifted 37% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 36% 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 DIGITAL CHOSUN's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Final Word
DIGITAL CHOSUN's P/E is getting right up there since its shares have risen strongly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of DIGITAL CHOSUN 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. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely 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.
You should always think about risks. Case in point, we've spotted 2 warning signs for DIGITAL CHOSUN you should be aware of.
Of course, you might also be able to find a better stock than DIGITAL CHOSUN. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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