Optimistic Investors Push Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) Shares Up 25% But Growth Is Lacking

Despite an already strong run, Oriental Precision & Engineering Co.,Ltd. (KOSDAQ:014940) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 92% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Oriental Precision & EngineeringLtd's price-to-earnings (or "P/E") ratio of 13.5x is worth a mention when the median P/E in Korea is similar at about 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's exceedingly strong of late, Oriental Precision & EngineeringLtd has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Oriental Precision & EngineeringLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Oriental Precision & EngineeringLtd's earnings, revenue and cash flow.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Oriental Precision & EngineeringLtd's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 106% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 34% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Oriental Precision & EngineeringLtd's P/E sits in line with the majority of other companies. 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 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

Oriental Precision & EngineeringLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Oriental Precision & EngineeringLtd currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Oriental Precision & EngineeringLtd with six simple checks on some of these key factors.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.