C&C International Co., Ltd.'s (KOSDAQ:352480) 26% Share Price Plunge Could Signal Some Risk

C&C International Co., Ltd. (KOSDAQ:352480) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about C&C International's P/E ratio of 9.9x, since the median price-to-earnings (or "P/E") ratio in Korea is also close to 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times haven't been advantageous for C&C International as its earnings have been rising slower than most other companies. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View our latest analysis for C&C International

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

Is There Some Growth For C&C International?

In order to justify its P/E ratio, C&C International would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.3% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 5.0% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 18% per annum, which is noticeably more attractive.

In light of this, it's curious that C&C International's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

Following C&C International's share price tumble, its P/E is now hanging on to the median market P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that C&C International currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware C&C International is showing 2 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.