Lacklustre Performance Is Driving SK D&D Co. Ltd.'s (KRX:210980) 28% Price Drop

To the annoyance of some shareholders, SK D&D Co. Ltd. (KRX:210980) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 7.3% over that longer period.

In spite of the heavy fall in price, SK D&D's price-to-earnings (or "P/E") ratio of 4.3x might still make it look like a strong buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 15x and even P/E's above 30x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, SK D&D has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for SK D&D

Want the full picture on analyst estimates for the company? Then our free report on SK D&D will help you uncover what's on the horizon.

Is There Any Growth For SK D&D?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 23%. This means it has also seen a slide in earnings over the longer-term as EPS is down 23% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 17% as estimated by the seven analysts watching the company. With the market predicted to deliver 36% growth , that's a disappointing outcome.

With this information, we are not surprised that SK D&D is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

SK D&D's P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of SK D&D's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for SK D&D (1 shouldn't be ignored!) that you need to take into consideration.

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