KEPCO Engineering & Construction Company, Inc.'s (KRX:052690) Share Price Is Still Matching Investor Opinion Despite 28% Slump

The KEPCO Engineering & Construction Company, Inc. (KRX:052690) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

Although its price has dipped substantially, KEPCO Engineering & Construction Company's price-to-earnings (or "P/E") ratio of 48.2x might still make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 10x and even P/E's below 6x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

KEPCO Engineering & Construction Company's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for KEPCO Engineering & Construction Company

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Is There Enough Growth For KEPCO Engineering & Construction Company?

The only time you'd be truly comfortable seeing a P/E as steep as KEPCO Engineering & Construction Company's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 288% overall rise in EPS, in spite of its uninspiring short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 43% as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 33%, which is noticeably less attractive.

In light of this, it's understandable that KEPCO Engineering & Construction Company's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

KEPCO Engineering & Construction Company's shares may have retreated, but its P/E is still flying high. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of KEPCO Engineering & Construction Company's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for KEPCO Engineering & Construction Company with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on KEPCO Engineering & Construction Company, 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.