Samsung Securities Co.,Ltd. (KRX:016360) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Samsung Securities Co.,Ltd. (KRX:016360) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

In spite of the firm bounce in price, Samsung SecuritiesLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.3x, since almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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With earnings growth that's superior to most other companies of late, Samsung SecuritiesLtd has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

Check out our latest analysis for Samsung SecuritiesLtd

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How Is Samsung SecuritiesLtd's Growth Trending?

In order to justify its P/E ratio, Samsung SecuritiesLtd would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 64%. Still, incredibly EPS has fallen 6.9% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 1.9% per year as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 18% each year, which is noticeably more attractive.

In light of this, it's understandable that Samsung SecuritiesLtd's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Shares in Samsung SecuritiesLtd are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Samsung SecuritiesLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 2 warning signs for Samsung SecuritiesLtd that you should be aware of.

Of course, you might also be able to find a better stock than Samsung SecuritiesLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.