- South Korea
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- Machinery
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- KOSE:A009160
SIMPAC Inc. (KRX:009160) Looks Inexpensive But Perhaps Not Attractive Enough
When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 21x, you may consider SIMPAC Inc. (KRX:009160) as a highly attractive investment with its 5.9x 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 so limited.
With earnings growth that's exceedingly strong of late, SIMPAC has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for SIMPAC
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SIMPAC will help you shine a light on its historical performance.What Are Growth Metrics Telling Us About The Low P/E?
SIMPAC's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Retrospectively, the last year delivered an exceptional 274% gain to the company's bottom line. EPS has also lifted 15% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 47% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that SIMPAC's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On SIMPAC's P/E
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 SIMPAC revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 3 warning signs for SIMPAC that you need to take into consideration.
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 P/E below 20x.
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This article by Simply Wall St is general in nature. 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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About KOSE:A009160
SIMPAC
Manufactures and markets mechanical, hydraulic, and servo press machines worldwide.
Proven track record with adequate balance sheet.