Investors Aren't Buying DRB Holding Co., Ltd.'s (KRX:004840) Earnings

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 14x, you may consider DRB Holding Co., Ltd. (KRX:004840) as an attractive investment with its 9.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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As an illustration, earnings have deteriorated at DRB Holding over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for DRB Holding

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

Is There Any Growth For DRB Holding?

The only time you'd be truly comfortable seeing a P/E as low as DRB Holding's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 30% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that DRB Holding's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of DRB Holding revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for DRB Holding that you need to take into consideration.

You might be able to find a better investment than DRB Holding. 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.