Poongsan Corporation (KRX:103140) Shares Fly 30% But Investors Aren't Buying For Growth

Poongsan Corporation (KRX:103140) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 78% in the last year.

Although its price has surged higher, Poongsan's price-to-earnings (or "P/E") ratio of 8.5x might still make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 12x and even P/E's above 23x are quite common. 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 have been advantageous for Poongsan as its earnings have been rising faster 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.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. EPS has also lifted 9.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 9.1% per year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 20% per year growth forecast for the broader market.

With this information, we can see why Poongsan 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.

What We Can Learn From Poongsan's P/E?

Despite Poongsan's shares building up a head of steam, its P/E still lags most other companies. 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 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Poongsan you should be aware of.

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.