GS Holdings Corp.'s (KRX:078930) Low P/E No Reason For Excitement

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 13x, you may consider GS Holdings Corp. (KRX:078930) as a highly attractive investment with its 3x 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 that are retreating more than the market's of late, GS Holdings has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for GS Holdings

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

How Is GS Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as GS Holdings' 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 39%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 4.1% each year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is noticeably more attractive.

With this information, we can see why GS Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

We've established that GS Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Having said that, be aware GS Holdings is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than GS Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.