There's No Escaping DB Securities Co., Ltd.'s (KRX:016610) Muted Earnings Despite A 28% Share Price Rise

Despite an already strong run, DB Securities Co., Ltd. (KRX:016610) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 102% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 13x, you may still consider DB Securities as an attractive investment with its 7.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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DB Securities certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for DB 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 DB Securities' earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered an exceptional 495% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 49% 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 28% 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 DB Securities is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On DB Securities' P/E

Despite DB Securities' shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of DB 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for DB Securities you should be aware of, and 1 of them is a bit unpleasant.

If these risks are making you reconsider your opinion on DB Securities, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.