Earnings Working Against Wing Yip Food Holdings Group Limited's (KOSDAQ:900340) Share Price Following 26% Dive

Wing Yip Food Holdings Group Limited (KOSDAQ:900340) shares have had a horrible month, losing 26% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 116%.

Even after such a large drop in price, Wing Yip Food Holdings Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5x, since almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 24x 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.

Earnings have risen firmly for Wing Yip Food Holdings Group recently, which is pleasing to see. It might be that many expect the respectable 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.

Check out our latest analysis for Wing Yip Food Holdings Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Wing Yip Food Holdings Group will help you shine a light on its historical performance.

How Is Wing Yip Food Holdings Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Wing Yip Food Holdings Group's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 28% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 34% 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 Wing Yip Food Holdings Group 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.

The Bottom Line On Wing Yip Food Holdings Group's P/E

Shares in Wing Yip Food Holdings Group have plummeted and its P/E is now low enough to touch the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Wing Yip Food Holdings Group 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.

Having said that, be aware Wing Yip Food Holdings Group is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

You might be able to find a better investment than Wing Yip Food Holdings Group. 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.