Lacklustre Performance Is Driving Hankook Tire & Technology Co., Ltd.'s (KRX:161390) Low P/E

Hankook Tire & Technology Co., Ltd.'s (KRX:161390) price-to-earnings (or "P/E") ratio of 4.4x 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 14x and even P/E's above 28x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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With earnings growth that's superior to most other companies of late, Hankook Tire & Technology has been doing relatively well. It might be that many expect the strong 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.

See our latest analysis for Hankook Tire & Technology

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Is There Any Growth For Hankook Tire & Technology?

In order to justify its P/E ratio, Hankook Tire & Technology would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 9.5% gain to the company's bottom line. The latest three year period has also seen an excellent 105% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 10% per year during the coming three years according to the eight analysts following the company. With the market predicted to deliver 18% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Hankook Tire & Technology's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

We've established that Hankook Tire & Technology 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for Hankook Tire & Technology that you need to take into consideration.

Of course, you might also be able to find a better stock than Hankook Tire & Technology. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.