Risks Still Elevated At These Prices As Aniplus Inc. (KOSDAQ:310200) Shares Dive 26%

Aniplus Inc. (KOSDAQ:310200) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 34%, which is great even in a bull market.

Even after such a large drop in price, there still wouldn't be many who think Aniplus' price-to-earnings (or "P/E") ratio of 13.6x is worth a mention when the median P/E in Korea is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Aniplus has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, 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.

See our latest analysis for Aniplus

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Aniplus' earnings, revenue and cash flow.

How Is Aniplus' Growth Trending?

In order to justify its P/E ratio, Aniplus would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. However, this wasn't enough as the latest three year period has seen an unpleasant 36% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 33% shows it's an unpleasant look.

With this information, we find it concerning that Aniplus is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a 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

With its share price falling into a hole, the P/E for Aniplus looks quite average now. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Aniplus revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Aniplus with six simple checks.

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.