The Market Doesn't Like What It Sees From Kyung Dong Navien Co., Ltd.'s (KRX:009450) Earnings Yet As Shares Tumble 25%

To the annoyance of some shareholders, Kyung Dong Navien Co., Ltd. (KRX:009450) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 12%.

In spite of the heavy fall in price, Kyung Dong Navien's price-to-earnings (or "P/E") ratio of 7.3x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 11x and even P/E's above 23x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Kyung Dong Navien certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Kyung Dong Navien

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What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Kyung Dong Navien would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 50% gain to the company's bottom line. The latest three year period has also seen an excellent 46% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 7.2% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 22%, which is noticeably more attractive.

In light of this, it's understandable that Kyung Dong Navien's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The softening of Kyung Dong Navien's shares means its P/E is now sitting at a pretty low level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Kyung Dong Navien's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Kyung Dong Navien .

If these risks are making you reconsider your opinion on Kyung Dong Navien, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.