How Does Guyoung Technology’s (KOSDAQ:053270) P/E Compare To Its Industry, After Its Big Share Price Gain? – Simply Wall St News

Those holding Guyoung Technology (KOSDAQ:053270) shares must be pleased that the share price has rebounded 54% in the last thirty days. But unfortunately, the stock is still down by 20% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 22% in the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that deep value investors might steer clear when expectations of a company are too high. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.

Check out our latest analysis for Guyoung Technology

Does Guyoung Technology Have A Relatively High Or Low P/E For Its Industry?

We can tell from its P/E ratio of 10.82 that there is some investor optimism about Guyoung Technology. As you can see below, Guyoung Technology has a higher P/E than the average company (9.5) in the auto components industry.

Guyoung Technology’s P/E tells us that market participants think the company will perform better than its industry peers, going forward. The market is optimistic about the future, but that doesn’t guarantee future growth. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the ‘E’ in the equation. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. So while a stock may look cheap based on past earnings, it could be expensive based on future earnings.

Guyoung Technology’s earnings per share fell by 54% in the last twelve months. But it has grown its earnings per share by 2.0% per year over the last five years. And it has shrunk its earnings per share by 1.5% per year over the last three years. This growth rate might warrant a low P/E ratio.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

The ‘Price’ in P/E reflects the market capitalization of the company. That means it doesn’t take debt or cash into account. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

Guyoung Technology’s Balance Sheet

Guyoung Technology’s net debt is considerable, at 227% of its market cap. This level of debt justifies a relatively low P/E, so remain cognizant of the debt, if you’re comparing it to other stocks.

The Verdict On Guyoung Technology’s P/E Ratio

Guyoung Technology’s P/E is 10.8 which is below average (14.1) in the KR market. Given meaningful debt, and a lack of recent growth, the market looks to be extrapolating this recent performance; reflecting low expectations for the future. What is very clear is that the market has become more optimistic about Guyoung Technology over the last month, with the P/E ratio rising from 7.0 back then to 10.8 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is ‘blood in the streets’, then you may feel the opportunity has passed.

When the market is wrong about a stock, it gives savvy investors an opportunity. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. Although we don’t have analyst forecasts shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

You might be able to find a better buy than Guyoung Technology. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.