Benign Growth For Poongsan Corporation (KRX:103140) Underpins Stock's 26% Plummet

Poongsan Corporation (KRX:103140) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 30% in the last year.

Although its price has dipped substantially, Poongsan may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.8x, since almost half of all companies in Korea have P/E ratios greater than 11x and even P/E's higher than 23x 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.

Poongsan certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

View our latest analysis for Poongsan

Keen to find out how analysts think Poongsan's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Poongsan's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. As a result, it also grew EPS by 7.8% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 13% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

With this information, we can see why Poongsan is trading at a P/E lower than the market. 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 Poongsan's P/E?

Poongsan's P/E has taken a tumble along with its share price. 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 Poongsan 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. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Poongsan that you should be aware of.

If these risks are making you reconsider your opinion on Poongsan, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.