Investors Don't See Light At End Of Hansol Chemical Co., Ltd.'s (KRX:014680) Tunnel And Push Stock Down 26%

The Hansol Chemical Co., Ltd. (KRX:014680) share price has fared very poorly over the last month, falling by a substantial 26%. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

Although its price has dipped substantially, Hansol Chemical may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.6x, since almost half of all companies in Korea have P/E ratios greater than 11x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

While the market has experienced earnings growth lately, Hansol Chemical's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Hansol Chemical

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

Does Growth Match The Low P/E?

Hansol Chemical's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 20% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 12% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 33% growth forecast for the broader market.

In light of this, it's understandable that Hansol Chemical's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Hansol Chemical's P/E?

The softening of Hansol Chemical's shares means its P/E is now sitting at a pretty low level. 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.

We've established that Hansol Chemical 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.

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

You might be able to find a better investment than Hansol Chemical. 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.