There's Reason For Concern Over Korea Zinc Company, Ltd.'s (KRX:010130) Massive 40% Price Jump

Simply Wall St · 03/12 21:34

Korea Zinc Company, Ltd. (KRX:010130) shareholders are no doubt pleased to see that the share price has bounced 40% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 137% in the last year.

Following the firm bounce in price, Korea Zinc Company's price-to-earnings (or "P/E") ratio of 30.7x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 11x and even P/E's below 6x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Korea Zinc Company's and the market's earnings growth lately. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Korea Zinc Company

pe-multiple-vs-industry
KOSE:A010130 Price to Earnings Ratio vs Industry March 12th 2025
Keen to find out how analysts think Korea Zinc Company's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Korea Zinc Company?

The only time you'd be truly comfortable seeing a P/E as steep as Korea Zinc Company's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 19% drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 21% over the next year. That's shaping up to be materially lower than the 26% growth forecast for the broader market.

In light of this, it's alarming that Korea Zinc Company's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

The strong share price surge has got Korea Zinc Company's P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Korea Zinc Company's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Korea Zinc Company (1 can't be ignored!) that we have uncovered.

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.