Some Confidence Is Lacking In Chinyang Poly Urethane Co.,Ltd (KRX:010640) As Shares Slide 26%

Unfortunately for some shareholders, the Chinyang Poly Urethane Co.,Ltd (KRX:010640) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that Chinyang Poly UrethaneLtd's price-to-earnings (or "P/E") ratio of 11.1x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 12x. 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.

Our free stock report includes 5 warning signs investors should be aware of before investing in Chinyang Poly UrethaneLtd. Read for free now.

The earnings growth achieved at Chinyang Poly UrethaneLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Chinyang Poly UrethaneLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Chinyang Poly UrethaneLtd's earnings, revenue and cash flow.

Does Growth Match The P/E?

In order to justify its P/E ratio, Chinyang Poly UrethaneLtd would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 20% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it interesting that Chinyang Poly UrethaneLtd is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Chinyang Poly UrethaneLtd's P/E

Chinyang Poly UrethaneLtd's plummeting stock price has brought its P/E right back to the rest of the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Chinyang Poly UrethaneLtd currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Chinyang Poly UrethaneLtd (of which 1 is significant!) you should know about.

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.