AMOREPACIFIC Holdings Corp. (KRX:002790) Might Not Be As Mispriced As It Looks

AMOREPACIFIC Holdings Corp.'s (KRX:002790) price-to-earnings (or "P/E") ratio of 9.6x might 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 12x and even P/E's above 26x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been advantageous for AMOREPACIFIC Holdings 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 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.

View our latest analysis for AMOREPACIFIC Holdings

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

Is There Any Growth For AMOREPACIFIC Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like AMOREPACIFIC Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 78% last year. EPS has also lifted 8.5% in aggregate from three years ago, mostly 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.

Looking ahead now, EPS is anticipated to climb by 36% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 20%, which is noticeably less attractive.

With this information, we find it odd that AMOREPACIFIC Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From AMOREPACIFIC Holdings' P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that AMOREPACIFIC Holdings currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for AMOREPACIFIC Holdings you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.