There's No Escaping People & Technology Inc.'s (KOSDAQ:137400) Muted Earnings Despite A 35% Share Price Rise

People & Technology Inc. (KOSDAQ:137400) shareholders have had their patience rewarded with a 35% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

In spite of the firm bounce in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 15x, you may still consider People & Technology as an attractive investment with its 10.5x 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.

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Recent times have been pleasing for People & Technology as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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How Is People & Technology's Growth Trending?

In order to justify its P/E ratio, People & Technology would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a decent 8.7% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 70% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.4% per year during the coming three years according to the two analysts following the company. Meanwhile, the broader market is forecast to expand by 19% each year, which paints a poor picture.

With this information, we are not surprised that People & Technology is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From People & Technology's P/E?

People & Technology's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that People & Technology maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for People & Technology you should know about.

If you're unsure about the strength of People & Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.