It's A Story Of Risk Vs Reward With Taekyung Chemical Co., Ltd. (KRX:006890)

Taekyung Chemical Co., Ltd.'s (KRX:006890) price-to-earnings (or "P/E") ratio of 7.8x might make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 11x and even P/E's above 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Taekyung Chemical certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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 Taekyung Chemical

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

How Is Taekyung Chemical's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Taekyung Chemical's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 68% last year. The strong recent performance means it was also able to grow EPS by 80% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the sole analyst watching the company. That's shaping up to be similar to the 20% per annum growth forecast for the broader market.

In light of this, it's peculiar that Taekyung Chemical's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Taekyung Chemical's P/E

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.

We've established that Taekyung Chemical currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Having said that, be aware Taekyung Chemical is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Taekyung Chemical, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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