Improved Earnings Required Before HWASHIN CO.,Ltd (KRX:010690) Stock's 41% Jump Looks Justified

HWASHIN CO.,Ltd (KRX:010690) shares have had a really impressive month, gaining 41% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 4.5% over the last year.

Even after such a large jump in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 14x, you may still consider HWASHINLtd as an attractive investment with its 6.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

HWASHINLtd has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for HWASHINLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HWASHINLtd.

How Is HWASHINLtd's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. 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. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 15% per year during the coming three years according to the three analysts following the company. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

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

What We Can Learn From HWASHINLtd's P/E?

The latest share price surge wasn't enough to lift HWASHINLtd's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of HWASHINLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for HWASHINLtd that we have uncovered.

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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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.

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