There's No Escaping Cherrybro co.,Ltd's (KOSDAQ:066360) Muted Earnings Despite A 31% Share Price Rise

Cherrybro co.,Ltd (KOSDAQ:066360) shares have continued their recent momentum with a 31% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

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 12x, you may still consider CherrybroLtd as an attractive investment with its 9.5x 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.

For example, consider that CherrybroLtd's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for CherrybroLtd

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 CherrybroLtd's earnings, revenue and cash flow.

How Is CherrybroLtd's Growth Trending?

CherrybroLtd'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, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 71%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 33% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why CherrybroLtd is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On CherrybroLtd's P/E

CherrybroLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of CherrybroLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware CherrybroLtd is showing 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If these risks are making you reconsider your opinion on CherrybroLtd, 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.