S&S Tech Corporation (KOSDAQ:101490) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

S&S Tech Corporation (KOSDAQ:101490) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The annual gain comes to 100% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies in Korea have price-to-earnings ratios (or “P/E’s”) below 13x, you may consider S&S Tech as a stock to avoid entirely with its 29.6x P/E ratio. 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 quite advantageous for S&S Tech as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for S&S Tech

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on S&S Tech will help you shine a light on its historical performance.

How Is S&S Tech’s Growth Trending?

In order to justify its P/E ratio, S&S Tech would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 41% last year. The latest three year period has also seen an excellent 161% overall rise in EPS, aided by its short-term performance. Therefore, it’s fair to say the earnings growth recently has been superb for the company.

It’s interesting to note that the rest of the market is similarly expected to grow by 36% over the next year, which is fairly even with the company’s recent medium-term annualised growth rates.

With this information, we find it interesting that S&S Tech is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than recent times would indicate and aren’t willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

S&S Tech’s P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn’t be the defining factor in whether you buy a stock or not, it’s quite a capable barometer of earnings expectations.

Our examination of S&S Tech revealed its three-year earnings trends aren’t impacting its high P/E as much as we would have predicted, given they look similar to current market expectations. When we see average earnings with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders’ investments at risk and potential investors in danger of paying an unnecessary premium.

Don’t forget that there may be other risks. For instance, we’ve identified 1 warning sign for S&S Tech that you should be aware of.

You might be able to find a better investment than S&S Tech. 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.