Why Investors Shouldn't Be Surprised By DB Insurance Co., Ltd.'s (KRX:005830) Low P/E

With a price-to-earnings (or "P/E") ratio of 4.6x DB Insurance Co., Ltd. (KRX:005830) may be sending very bullish signals at the moment, given that almost half of all companies in Korea have P/E ratios greater than 15x and even P/E's higher than 36x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times haven't been advantageous for DB Insurance as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for DB Insurance

Keen to find out how analysts think DB Insurance's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For DB Insurance?

The only time you'd be truly comfortable seeing a P/E as depressed as DB Insurance's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 10.0%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 28% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 3.1% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

With this information, we can see why DB Insurance 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.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of DB Insurance's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for DB Insurance with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than DB Insurance. 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.