Daesung Private Equity, Inc.'s (KOSDAQ:027830) 26% Dip In Price Shows Sentiment Is Matching Earnings

Daesung Private Equity, Inc. (KOSDAQ:027830) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

Although its price has dipped substantially, Daesung Private Equity's price-to-earnings (or "P/E") ratio of 7.2x 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 12x and even P/E's above 26x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Daesung Private Equity. View them for free.

Recent times have been quite advantageous for Daesung Private Equity as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Daesung Private Equity

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Daesung Private Equity's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Daesung Private Equity's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 457% last year. The latest three year period has also seen an excellent 34% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 22% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Daesung Private Equity is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

The softening of Daesung Private Equity's shares means its P/E is now sitting at a pretty low level. 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 Daesung Private Equity maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Daesung Private Equity.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.