Market Cool On NHN KCP Corp.'s (KOSDAQ:060250) Earnings

NHN KCP Corp.'s (KOSDAQ:060250) price-to-earnings (or "P/E") ratio of 7.6x 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 13x and even P/E's above 25x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, NHN KCP has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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.

View our latest analysis for NHN KCP

Want the full picture on analyst estimates for the company? Then our free report on NHN KCP will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as NHN KCP's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 22% last year. EPS has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 33% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 17% per year growth forecast for the broader market.

With this information, we find it odd that NHN KCP is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On NHN KCP's P/E

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.

We've established that NHN KCP currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with NHN KCP, and understanding should be part of your investment process.

You might be able to find a better investment than NHN KCP. 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).

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.