Advanced Nano Products Co., Ltd. (KOSDAQ:121600) Shares Slammed 28% But Getting In Cheap Might Be Difficult Regardless

Advanced Nano Products Co., Ltd. (KOSDAQ:121600) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 45% share price drop.

In spite of the heavy fall in price, Advanced Nano Products may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 66.2x, since almost half of all companies in Korea have P/E ratios under 10x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, Advanced Nano Products' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, 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.

Check out our latest analysis for Advanced Nano Products

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

How Is Advanced Nano Products' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Advanced Nano Products' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 40% decrease to the company's bottom line. Even so, admirably EPS has lifted 152% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 70% each year as estimated by the five analysts watching the company. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Advanced Nano Products' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Advanced Nano Products' P/E?

Even after such a strong price drop, Advanced Nano Products' P/E still exceeds the rest of the market significantly. 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 Advanced Nano Products' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Advanced Nano Products is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

You might be able to find a better investment than Advanced Nano Products. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.