Binggrae Co., Ltd. (KRX:005180) Surges 54% Yet Its Low P/E Is No Reason For Excitement

Binggrae Co., Ltd. (KRX:005180) shares have continued their recent momentum with a 54% gain in the last month alone. The last month tops off a massive increase of 134% in the last year.

In spite of the firm bounce in price, Binggrae's price-to-earnings (or "P/E") ratio of 10.3x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 13x and even P/E's above 27x 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 limited.

Binggrae certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Binggrae

Want the full picture on analyst estimates for the company? Then our free report on Binggrae will help you uncover what's on the horizon.

Is There Any Growth For Binggrae?

The only time you'd be truly comfortable seeing a P/E as low as Binggrae's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 190% last year. The strong recent performance means it was also able to grow EPS by 223% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 1.8% per annum during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader market.

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

What We Can Learn From Binggrae's P/E?

Despite Binggrae's shares building up a head of steam, its P/E still lags most other companies. 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 Binggrae's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Binggrae that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.