There's No Escaping Youngone Corporation's (KRX:111770) Muted Earnings Despite A 54% Share Price Rise

Youngone Corporation (KRX:111770) shareholders have had their patience rewarded with a 54% share price jump in the last month. The last month tops off a massive increase of 111% in the last year.

Although its price has surged higher, Youngone's price-to-earnings (or "P/E") ratio of 8.6x 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 14x and even P/E's above 30x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Youngone as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See 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.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Youngone would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.5% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 19% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 7.8% during the coming year according to the nine analysts following the company. That's shaping up to be materially lower than the 38% growth forecast for the broader market.

With this information, we can see why Youngone is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Despite Youngone's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Youngone's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Youngone with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Youngone. 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.