The Market Lifts Young Poong Precision Corporation (KOSDAQ:036560) Shares 32% But It Can Do More

Young Poong Precision Corporation (KOSDAQ:036560) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

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 12x, you may still consider Young Poong Precision as an attractive investment with its 7.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Young Poong Precision over the last year would be more than acceptable for most companies. 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 Young Poong Precision

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Young Poong Precision would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 10.0% gain to the company's bottom line. Pleasingly, EPS has also lifted 121% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 32% shows it's about the same on an annualised basis.

With this information, we find it odd that Young Poong Precision is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Young Poong Precision's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Young Poong Precision currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Young Poong Precision, and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.