Korea Zinc Inc.'s (KRX:010130) Share Price Not Quite Adding Up

With a median price-to-earnings (or "P/E") ratio of close to 14x in Korea, you could be forgiven for feeling indifferent about Korea Zinc Inc.'s (KRX:010130) P/E ratio of 16.1x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Korea Zinc has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Korea Zinc

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

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Korea Zinc's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 10% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 9.6% during the coming year according to the analysts following the company. With the market predicted to deliver 37% growth , that's a disappointing outcome.

With this information, we find it concerning that Korea Zinc is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Korea Zinc's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Korea Zinc (1 is potentially serious!) that you need to take into consideration.

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

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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.