LS SECURITIES Co., Ltd.'s (KOSDAQ:078020) Prospects Need A Boost To Lift Shares

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may consider LS SECURITIES Co., Ltd. (KOSDAQ:078020) as an attractive investment with its 7.7x 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.

With earnings growth that's exceedingly strong of late, LS SECURITIES has been doing very 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.

See our latest analysis for LS SECURITIES

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 LS SECURITIES' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 81% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 31% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that LS SECURITIES is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From LS SECURITIES' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of LS SECURITIES revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for LS SECURITIES (1 is a bit concerning!) that we have uncovered.

You might be able to find a better investment than LS SECURITIES. 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.

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