Seobu T&D Co., Ltd.'s (KOSDAQ:006730) Price Is Right But Growth Is Lacking

Seobu T&D Co., Ltd.'s (KOSDAQ:006730) price-to-earnings (or "P/E") ratio of 10.3x might 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 29x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been advantageous for Seobu T&D as its earnings have been rising faster 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.

View our latest analysis for Seobu T&D

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Seobu T&D.

Is There Any Growth For Seobu T&D?

The only time you'd be truly comfortable seeing a P/E as low as Seobu T&D's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 35% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 91% during the coming year according to the two analysts following the company. That's not great when the rest of the market is expected to grow by 36%.

In light of this, it's understandable that Seobu T&D's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Seobu T&D maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Seobu T&D (2 shouldn't be ignored) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.