Cosmax BTI, Inc.'s (KRX:044820) Price Is Right But Growth Is Lacking After Shares Rocket 31%

Cosmax BTI, Inc. (KRX:044820) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Although its price has surged higher, Cosmax BTI may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.7x, since almost half of all companies in Korea have P/E ratios greater than 13x and even P/E's higher than 26x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Cosmax BTI certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

Check out our latest analysis for Cosmax BTI

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Cosmax BTI's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 43%. The latest three year period has also seen a 23% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Cosmax BTI's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Cosmax BTI's P/E?

The latest share price surge wasn't enough to lift Cosmax BTI's P/E close to the market median. 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.

As we suspected, our examination of Cosmax BTI revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Cosmax BTI (including 1 which is potentially serious).

If these risks are making you reconsider your opinion on Cosmax BTI, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.