Improved Earnings Required Before Cubic Korea Inc. (KOSDAQ:021650) Shares Find Their Feet

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 11x, you may consider Cubic Korea Inc. (KOSDAQ:021650) as a highly attractive investment with its 3.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Cubic Korea has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Cubic Korea

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Cubic Korea's earnings, revenue and cash flow.

How Is Cubic Korea's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Cubic Korea's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 12% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Cubic Korea is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Cubic Korea maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Cubic Korea you should be aware of.

If these risks are making you reconsider your opinion on Cubic Korea, 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.