BGF retail CO., LTD.'s (KRX:282330) Share Price Is Matching Sentiment Around Its Earnings

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 13x, you may consider BGF retail CO., LTD. (KRX:282330) as an attractive investment with its 9.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

BGF retail's negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is low because investors think the company's earnings may begin to slide even faster. You'd much rather the company wasn't bleeding earnings if you still believe in the business. At the very least, you'd be hoping that earnings don't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for BGF retail

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Is There Any Growth For BGF retail?

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

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's bottom line. Even so, admirably EPS has lifted 51% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 6.6% per year over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why BGF retail is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 BGF retail maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for BGF retail you should be aware of.

If you're unsure about the strength of BGF retail'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.