The Market Doesn't Like What It Sees From KBG Corp.'s (KOSDAQ:318000) Earnings Yet As Shares Tumble 29%

KBG Corp. (KOSDAQ:318000) shareholders that were waiting for something to happen have been dealt a blow with a 29% 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 46% share price drop.

In spite of the heavy fall in price, KBG may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.6x, since almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 25x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for KBG as its earnings have been rising very briskly. 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 KBG

Although there are no analyst estimates available for KBG, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

KBG's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 59%. The strong recent performance means it was also able to grow EPS by 39% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 31% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why KBG is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From KBG's P/E?

The softening of KBG's shares means its P/E is now sitting at a pretty low level. 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 KBG 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.

It is also worth noting that we have found 1 warning sign for KBG that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.

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