Subdued Growth No Barrier To P&S Robotics Co., Ltd. (KOSDAQ:460940) With Shares Advancing 28%
Despite an already strong run, P&S Robotics Co., Ltd. (KOSDAQ:460940) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 202% in the last year.
After such a large jump in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 13x, you may consider P&S Robotics as a stock to avoid entirely with its 51.9x 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.
Earnings have risen firmly for P&S Robotics recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
See our latest analysis for P&S Robotics
Is There Enough Growth For P&S Robotics?
The only time you'd be truly comfortable seeing a P/E as steep as P&S Robotics' is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 20% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Comparing that to the market, which is predicted to deliver 37% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
With this information, we find it concerning that P&S Robotics is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.
The Final Word
P&S Robotics' P/E is flying high just like its stock has during the last month. 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.
We've established that P&S Robotics currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
Before you settle on your opinion, we've discovered 2 warning signs for P&S Robotics that you should be aware of.
Of course, you might also be able to find a better stock than P&S Robotics. 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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