What the P/E of Samsung Biologics Co., Ltd. (KRX: 207940) doesn’t tell you – Simply Wall St

With a price/earnings (or “P/E”) ratio of 65.6x Samsung Biologics Co., Ltd. (KRX:207940) could be sending very bearish signals right now, given that almost half of all Korean companies have P/E ratios below 12x and even P/Es below 6x are not unusual . However, we will need to dig a little deeper to determine whether there is a rational basis for this very high price-to-earnings ratio.

Recent times have been good for Samsung BiologicsLtd as its profits have increased despite the market’s earnings reversal. It appears many expect the company to continue to defy broader market adversity, which has increased investors’ willingness to pay for the stock. Otherwise, existing shareholders might be a little worried about the viability of the share price.

Check out our latest analysis for Samsung BiologicsLtd

If you want to see what analysts are predicting for the future, you should check out our free report on Samsung BiologicsLtd.

Is growth enough for Samsung BiologicsLtd?

There is an inherent assumption that a company would have to significantly outperform the market for P/E ratios like Samsung BiologicsLtd’s to be considered reasonable.

Looking at the last year of earnings growth, the company saw a healthy 5.3% increase. The most recent three-year period also saw an excellent 231% overall rise in EPS, aided somewhat by its near-term performance. So we can start by confirming that the company has done a great job growing its profits over this period.

Currently, EPS is expected to grow 15% each year for the next three years, according to analysts who follow the company. This promises to be significantly lower than the 20% annual growth forecast for the entire market.

With this information, we find it concerning that Samsung BiologicsLtd is trading at a higher P/E than the market. Apparently, many investors in the company are much more optimistic than analysts suggest and are not willing to give up their shares at any price. Only the boldest would assume these prices are sustainable, as this level of earnings growth is likely to weigh heavily on the stock price down the road.

Samsung BiologicsLtd’s P/E Bottom Line

Some argue that the price-to-earnings ratio is an inferior measure of value in some industries, but it can be a powerful indicator of business sentiment.

Our review of Samsung BiologicsLtd’s analyst forecasts found that its lower earnings outlook is not impacting its high P/E as much as we would have predicted. When we see weak earnings prospects with slower-than-market growth, we believe the stock price is likely to decline, pushing down the high P/E. This exposes shareholders’ investments to significant risks and potential investors may pay an excessive premium.

Many other vital risk factors appear on the company’s balance sheet. Take a look at our free Samsung BiologicsLtd balance sheet analysis with six simple checks on some of these key factors.

Of course, you may also be able to find a better stock than Samsung BiologicsLtd. So you might want to see this free a collection of other companies that have reasonable P/E ratios and have grown their earnings strongly.

Any feedback on this article? Worried about the content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to constitute financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your objectives or your financial situation. Our goal is to provide you with targeted, long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.