Some Confidence Is Lacking In PSK HOLDINGS Inc. (KOSDAQ:031980) As Shares Slide 28%

PSK HOLDINGS Inc. (KOSDAQ:031980) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 14%.

Although its price has dipped substantially, PSK HOLDINGS' price-to-earnings (or "P/E") ratio of 13x might still make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 10x and even P/E's below 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, PSK HOLDINGS has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for PSK HOLDINGS

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

How Is PSK HOLDINGS' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 35% gain to the company's bottom line. Pleasingly, EPS has also lifted 57% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 27% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that PSK HOLDINGS is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On PSK HOLDINGS' P/E

Despite the recent share price weakness, PSK HOLDINGS' P/E remains higher than most other companies. 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.

We've established that PSK HOLDINGS currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for PSK HOLDINGS (1 is a bit concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.