Pinning Down S-1 Corporation's (KRX:012750) P/E Is Difficult Right Now

With a median price-to-earnings (or "P/E") ratio of close to 12x in Korea, you could be forgiven for feeling indifferent about S-1 Corporation's (KRX:012750) P/E ratio of 10.8x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, S-1 has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.

View our latest analysis for S-1

Keen to find out how analysts think S-1's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

S-1's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. As a result, it also grew EPS by 22% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 1.6% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

In light of this, it's curious that S-1's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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 S-1 currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for S-1 that you should be aware of.

You might be able to find a better investment than S-1. 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.

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