Sejin Heavy Industries Co., Ltd.'s (KRX:075580) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/ERatio

Sejin Heavy Industries Co., Ltd. (KRX:075580) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 29%, which is great even in a bull market.

In spite of the heavy fall in price, Sejin Heavy Industries may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 16.2x, since almost half of all companies in Korea have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Sejin Heavy Industries certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Sejin Heavy Industries

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

How Is Sejin Heavy Industries' Growth Trending?

In order to justify its P/E ratio, Sejin Heavy Industries would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 94%. Still, incredibly EPS has fallen 26% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 5.8% over the next year. That's not great when the rest of the market is expected to grow by 31%.

With this information, we find it concerning that Sejin Heavy Industries is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On Sejin Heavy Industries' P/E

There's still some solid strength behind Sejin Heavy Industries' P/E, if not its share price lately. 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.

Our examination of Sejin Heavy Industries' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 3 warning signs we've spotted with Sejin Heavy Industries.

If these risks are making you reconsider your opinion on Sejin Heavy Industries, 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.