The Market Doesn't Like What It Sees From Binggrae Co., Ltd.'s (KRX:005180) Earnings Yet As Shares Tumble 26%

Binggrae Co., Ltd. (KRX:005180) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 13% in the last year.

In spite of the heavy fall in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Binggrae as an attractive investment with its 5.9x 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.

Binggrae certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

View our latest analysis for Binggrae

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Binggrae.

Does Growth Match The Low P/E?

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.

Retrospectively, the last year delivered an exceptional 67% gain to the company's bottom line. Pleasingly, EPS has also lifted 456% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 3.5% each year over the next three years. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

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?

Binggrae's P/E has taken a tumble along with its share price. 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 Binggrae's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Binggrae that you need to take into consideration.

You might be able to find a better investment than Binggrae. 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).

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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.