HD Hyundai Heavy Industries Co.,Ltd.’s (KRX:329180) Price In Tune With Earnings

With a price-to-earnings (or “P/E”) ratio of 43.6x HD Hyundai Heavy Industries Co.,Ltd. (KRX:329180) may be sending very bearish signals at the moment, given that almost half of all companies in Korea have P/E ratios under 14x and even P/E’s lower than 7x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Recent times have been advantageous for HD Hyundai Heavy IndustriesLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for HD Hyundai Heavy IndustriesLtd

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Is There Enough Growth For HD Hyundai Heavy IndustriesLtd?

The only time you’d be truly comfortable seeing a P/E as steep as HD Hyundai Heavy IndustriesLtd’s is when the company’s growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 352% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn’t have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 31% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 21% each year, which is noticeably less attractive.

In light of this, it’s understandable that HD Hyundai Heavy IndustriesLtd’s 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

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.

As we suspected, our examination of HD Hyundai Heavy IndustriesLtd’s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. It’s hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we’ve discovered 1 warning sign for HD Hyundai Heavy IndustriesLtd that you should be aware of.

You might be able to find a better investment than HD Hyundai Heavy IndustriesLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.