Echomarketing Co.,Ltd. (KOSDAQ:230360) Surges 28% Yet Its Low P/E Is No Reason For Excitement

Echomarketing Co.,Ltd. (KOSDAQ:230360) shareholders have had their patience rewarded with a 28% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.0% in the last twelve months.

Even after such a large jump in price, EchomarketingLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.3x, since almost half of all companies in Korea have P/E ratios greater than 15x and even P/E's higher than 31x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With only a limited decrease in earnings compared to most other companies of late, EchomarketingLtd has been doing relatively well. One possibility is that the P/E is low because investors think this relatively better earnings performance might be about to deteriorate significantly. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. But at the very least, you'd be hoping that earnings don't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

See our latest analysis for EchomarketingLtd

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

How Is EchomarketingLtd's Growth Trending?

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

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 5.2%. As a result, earnings from three years ago have also fallen 27% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the four analysts watching the company. With the market predicted to deliver 21% growth per year, the company is positioned for a weaker earnings result.

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

What We Can Learn From EchomarketingLtd's P/E?

Despite EchomarketingLtd's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that EchomarketingLtd maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for EchomarketingLtd that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.