Improved Earnings Required Before OCI Holdings Company Ltd. (KRX:010060) Shares Find Their Feet

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may consider OCI Holdings Company Ltd. (KRX:010060) as a highly attractive investment with its 3.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

OCI Holdings has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for OCI Holdings

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

Is There Any Growth For OCI Holdings?

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

Retrospectively, the last year delivered a frustrating 49% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the five analysts watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why OCI Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On OCI Holdings' P/E

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.

We've established that OCI Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for OCI Holdings that you should be aware of.

If you're unsure about the strength of OCI Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.