Some Confidence Is Lacking In Soop Co., Ltd. (KOSDAQ:067160) As Shares Slide 29%

Soop Co., Ltd. (KOSDAQ:067160) shares have had a horrible month, losing 29% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 9.3% over the last twelve months.

Although its price has dipped substantially, there still wouldn't be many who think Soop's price-to-earnings (or "P/E") ratio of 11.6x is worth a mention when the median P/E in Korea is similar at about 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been pleasing for Soop as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Soop

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

How Is Soop's Growth Trending?

The only time you'd be comfortable seeing a P/E like Soop's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 75% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the analysts following the company. With the market predicted to deliver 20% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's curious that Soop's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Soop's plummeting stock price has brought its P/E right back to the rest of the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Soop's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Soop that you need to take into consideration.

Of course, you might also be able to find a better stock than Soop. 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