Some Aekyungchemical Co., Ltd. (KRX:161000) Shareholders Look For Exit As Shares Take 30% Pounding

The Aekyungchemical Co., Ltd. (KRX:161000) share price has fared very poorly over the last month, falling by a substantial 30%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

In spite of the heavy fall in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may still consider Aekyungchemical as a stock to avoid entirely with its 26.5x 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 so lofty.

For instance, Aekyungchemical's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Aekyungchemical

Although there are no analyst estimates available for Aekyungchemical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Aekyungchemical's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 71%. As a result, earnings from three years ago have also fallen 82% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 31% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Aekyungchemical is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Aekyungchemical's shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Aekyungchemical revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 5 warning signs for Aekyungchemical you should be aware of, and 2 of them don't sit too well with us.

Of course, you might also be able to find a better stock than Aekyungchemical. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com