Sajodaerim Corporation's (KRX:003960) Low P/E No Reason For Excitement

Sajodaerim Corporation's (KRX:003960) price-to-earnings (or "P/E") ratio of 3.5x might 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 25x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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For example, consider that Sajodaerim'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. 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

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 Sajodaerim's earnings, revenue and cash flow.

How Is Sajodaerim's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.2%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 28% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Sajodaerim's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Sajodaerim's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Sajodaerim maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

Before you take the next step, you should know about the 1 warning sign for Sajodaerim that we have uncovered.

If you're unsure about the strength of Sajodaerim's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.