There's No Escaping InBody Co.,Ltd's (KOSDAQ:041830) Muted Earnings

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 11x, you may consider InBody Co.,Ltd (KOSDAQ:041830) as an attractive investment with its 7.7x 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.

Recent times have been advantageous for InBodyLtd as its earnings have been rising faster 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.

See our latest analysis for InBodyLtd

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

Is There Any Growth For InBodyLtd?

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

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. EPS has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 12% per annum over the next three years. That's shaping up to be materially lower than the 15% per year growth forecast for the broader market.

With this information, we can see why InBodyLtd 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 InBodyLtd'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 InBodyLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for InBodyLtd with six simple checks.

Of course, you might also be able to find a better stock than InBodyLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.