There's No Escaping Dongsung FineTec Co., Ltd.'s (KOSDAQ:033500) Muted Earnings Despite A 26% Share Price Rise

Dongsung FineTec Co., Ltd. (KOSDAQ:033500) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking further back, the 19% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Dongsung FineTec as an attractive investment with its 9.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Dongsung FineTec certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for Dongsung FineTec

Want the full picture on analyst estimates for the company? Then our free report on Dongsung FineTec will help you uncover what's on the horizon.

Is There Any Growth For Dongsung FineTec?

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

Retrospectively, the last year delivered an exceptional 497% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 2.3% as estimated by the three analysts watching the company. Meanwhile, the broader market is forecast to expand by 38%, which paints a poor picture.

With this information, we are not surprised that Dongsung FineTec is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Dongsung FineTec's P/E

Despite Dongsung FineTec's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Dongsung FineTec's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - Dongsung FineTec has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Dongsung FineTec. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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