Earnings Working Against Kumho Petro Chemical Co.,Ltd's (KRX:011780) Share Price

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may consider Kumho Petro Chemical Co.,Ltd (KRX:011780) as an attractive investment with its 9.5x 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 limited.

Recent times haven't been advantageous for Kumho Petro ChemicalLtd as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Kumho Petro ChemicalLtd

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. The last three years don't look nice either as the company has shrunk EPS by 72% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 11% per annum over the next three years. That's shaping up to be materially lower than the 17% each year growth forecast for the broader market.

With this information, we can see why Kumho Petro ChemicalLtd 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 Kumho Petro ChemicalLtd'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 Kumho Petro ChemicalLtd 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.

Plus, you should also learn about these 2 warning signs we've spotted with Kumho Petro ChemicalLtd.

You might be able to find a better investment than Kumho Petro ChemicalLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.