Benign Growth For Sajodaerim Corporation (KRX:003960) Underpins Stock's 26% Plummet

Sajodaerim Corporation (KRX:003960) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 84% in the last year.

Even after such a large drop in price, Sajodaerim's price-to-earnings (or "P/E") ratio of 4.2x might still make it look like a strong buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 12x and even P/E's above 22x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Sajodaerim has been doing a good job lately as it's been growing earnings at a solid pace. 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 Sajodaerim

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

Is There Any Growth For Sajodaerim?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Sajodaerim's to be considered reasonable.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Pleasingly, EPS has also lifted 72% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 32% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Sajodaerim's P/E sits below the majority of other companies. 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 Final Word

Shares in Sajodaerim have plummeted and its P/E is now low enough to touch the ground. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Sajodaerim revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Sajodaerim has 2 warning signs (and 1 which is significant) we think you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.