Some Confidence Is Lacking In PN Poong Nyun Co., Ltd. (KOSDAQ:024940) As Shares Slide 31%

To the annoyance of some shareholders, PN Poong Nyun Co., Ltd. (KOSDAQ:024940) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The last month has meant the stock is now only up 9.9% during the last year.

In spite of the heavy fall in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may still consider PN Poong Nyun as a stock to avoid entirely with its 28.2x 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 lofty.

We've discovered 3 warning signs about PN Poong Nyun. View them for free.

For instance, PN Poong Nyun's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for PN Poong Nyun

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on PN Poong Nyun will help you shine a light on its historical performance.

How Is PN Poong Nyun's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like PN Poong Nyun's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. As a result, earnings from three years ago have also fallen 26% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's an unpleasant look.

With this information, we find it concerning that PN Poong Nyun is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

Even after such a strong price drop, PN Poong Nyun's P/E still exceeds the rest of the market significantly. 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.

We've established that PN Poong Nyun currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 3 warning signs we've spotted with PN Poong Nyun (including 2 which are significant).

If these risks are making you reconsider your opinion on PN Poong Nyun, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.