There Is A Reason SK Chemicals Co.,Ltd's (KRX:285130) Price Is Undemanding

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 15x, you may consider SK Chemicals Co.,Ltd (KRX:285130) as an attractive investment with its 11.7x 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.

As an illustration, earnings have deteriorated at SK ChemicalsLtd over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

See our latest analysis for SK ChemicalsLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SK ChemicalsLtd will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

SK ChemicalsLtd'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.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 50%. Even so, admirably EPS has lifted 111% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 35% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why SK ChemicalsLtd is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As we suspected, our examination of SK ChemicalsLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware SK ChemicalsLtd is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If these risks are making you reconsider your opinion on SK ChemicalsLtd, 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.