HD Hyundai Construction Equipment Co., LTD.'s (KRX:267270) Business And Shares Still Trailing The Market

HD Hyundai Construction Equipment Co., LTD.'s (KRX:267270) price-to-earnings (or "P/E") ratio of 6.5x might 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 13x and even P/E's above 26x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, HD Hyundai Construction Equipment has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for HD Hyundai Construction Equipment

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

How Is HD Hyundai Construction Equipment's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as HD Hyundai Construction Equipment's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 11% each year over the next three years. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

In light of this, it's understandable that HD Hyundai Construction Equipment's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From HD Hyundai Construction Equipment's P/E?

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 HD Hyundai Construction Equipment'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. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for HD Hyundai Construction Equipment that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.