Korea Fuel-Tech Corporation's (KOSDAQ:123410) Shares Bounce 28% But Its Business Still Trails The Market

Korea Fuel-Tech Corporation (KOSDAQ:123410) shareholders have had their patience rewarded with a 28% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.2% in the last twelve months.

In spite of the firm bounce in price, Korea Fuel-Tech's price-to-earnings (or "P/E") ratio of 4.4x might still 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 33x 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.

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With its earnings growth in positive territory compared to the declining earnings of most other companies, Korea Fuel-Tech has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Korea Fuel-Tech

Keen to find out how analysts think Korea Fuel-Tech's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Korea Fuel-Tech's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 2.6% each year as estimated by the one analyst watching the company. With the market predicted to deliver 18% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Korea Fuel-Tech is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Korea Fuel-Tech's P/E?

Korea Fuel-Tech's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Korea Fuel-Tech maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Korea Fuel-Tech that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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