There's No Escaping Samsung E&A Co., Ltd.'s (KRX:028050) Muted Earnings

With a price-to-earnings (or "P/E") ratio of 4.8x Samsung E&A Co., Ltd. (KRX:028050) may be sending very bullish signals at the moment, given that almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 24x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Samsung E&A's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Samsung E&A

Want the full picture on analyst estimates for the company? Then our free report on Samsung E&A will help you uncover what's on the horizon.

Is There Any Growth For Samsung E&A?

The only time you'd be truly comfortable seeing a P/E as depressed as Samsung E&A's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. Even so, admirably EPS has lifted 118% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 11% as estimated by the analysts watching the company. With the market predicted to deliver 33% growth , that's a disappointing outcome.

In light of this, it's understandable that Samsung E&A's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Samsung E&A's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Samsung E&A's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Samsung E&A is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Samsung E&A. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.