Investors Holding Back On HCT Co., Ltd. (KOSDAQ:072990)

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 11x, you may consider HCT Co., Ltd. (KOSDAQ:072990) as an attractive investment with its 7.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, HCT has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for HCT

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

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the only analyst watching the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader market.

With this information, we find it odd that HCT is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On HCT'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.

Our examination of HCT's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for HCT that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.