Not Many Are Piling Into LS Corp. (KRX:006260) Just Yet

There wouldn't be many who think LS Corp.'s (KRX:006260) price-to-earnings (or "P/E") ratio of 13.4x is worth a mention when the median P/E in Korea is similar at about 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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While the market has experienced earnings growth lately, LS' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for LS

Keen to find out how analysts think LS' future stacks up against the industry? In that case, our free report is a great place to start.

How Is LS' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 45%. As a result, earnings from three years ago have also fallen 9.0% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 42% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.

In light of this, it's curious that LS' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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 LS currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for LS (1 is a bit concerning!) that you should be aware of before investing here.

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.