Some Confidence Is Lacking In Dongyang S.Tec Co.,Ltd (KOSDAQ:060380) As Shares Slide 28%

Dongyang S.Tec Co.,Ltd (KOSDAQ:060380) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 26% in that time.

In spite of the heavy fall in price, Dongyang S.TecLtd's price-to-earnings (or "P/E") ratio of 15.3x might still make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 12x and even P/E's below 6x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Dongyang S.TecLtd over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Dongyang S.TecLtd

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 Dongyang S.TecLtd's earnings, revenue and cash flow.

Does Growth Match The High P/E?

Dongyang S.TecLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a frustrating 51% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 78% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 33% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Dongyang S.TecLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Dongyang S.TecLtd's P/E?

There's still some solid strength behind Dongyang S.TecLtd's P/E, if not its share price lately. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Dongyang S.TecLtd revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Dongyang S.TecLtd (1 makes us a bit uncomfortable) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com