Sungchang Autotech Co., Ltd.'s (KOSDAQ:080470) Shares Lagging The Market But So Is The Business

Sungchang Autotech Co., Ltd.'s (KOSDAQ:080470) price-to-earnings (or "P/E") ratio of 5.1x might make it look like a strong buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 15x and even P/E's above 35x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Earnings have risen firmly for Sungchang Autotech recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

View our latest analysis for Sungchang Autotech

Although there are no analyst estimates available for Sungchang Autotech, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sungchang Autotech's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Sungchang Autotech's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 10.0% gain to the company's bottom line. The latest three year period has also seen an excellent 57% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 33% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Sungchang Autotech is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that Sungchang Autotech maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising 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 Sungchang Autotech that you should be aware of.

You might be able to find a better investment than Sungchang Autotech. 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.