Market Cool On Brand X Co.,Ltd.'s (KOSDAQ:337930) Earnings Pushing Shares 31% Lower

Unfortunately for some shareholders, the Brand X Co.,Ltd. (KOSDAQ:337930) share price has dived 31% in the last thirty days, prolonging recent pain. Longer-term, the stock has been solid despite a difficult 30 days, gaining 17% in the last year.

In spite of the heavy fall in price, Brand XLtd's price-to-earnings (or "P/E") ratio of 8.5x might still 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 11x and even P/E's above 22x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Brand XLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Brand XLtd

Keen to find out how analysts think Brand XLtd'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 Brand XLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 216% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 74% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 33% growth forecast for the broader market.

In light of this, it's peculiar that Brand XLtd's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Brand XLtd's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Brand XLtd currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Brand XLtd (of which 1 shouldn't be ignored!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.