Investors Aren't Buying Youngone Corporation's (KRX:111770) Earnings

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may consider Youngone Corporation (KRX:111770) as a highly attractive investment with its 3.4x 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 limited.

Youngone hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for Youngone

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

Is There Any Growth For Youngone?

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

Retrospectively, the last year delivered a frustrating 29% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 162% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 4.5% each year as estimated by the nine analysts watching the company. With the market predicted to deliver 20% growth each year, that's a disappointing outcome.

With this information, we are not surprised that Youngone is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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 Youngone maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Youngone (of which 1 is significant!) you should know about.

If you're unsure about the strength of Youngone's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.