Digital Imaging Technology, INC. (KOSDAQ:110990) Shares Slammed 27% But Getting In Cheap Might Be Difficult Regardless

Digital Imaging Technology, INC. (KOSDAQ:110990) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 103%.

In spite of the heavy fall in price, Digital Imaging Technology's price-to-earnings (or "P/E") ratio of 23.5x might still make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Digital Imaging Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Digital Imaging Technology

Although there are no analyst estimates available for Digital Imaging Technology, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Digital Imaging Technology's Growth Trending?

In order to justify its P/E ratio, Digital Imaging Technology would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. Pleasingly, EPS has also lifted 788% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 29% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Digital Imaging Technology's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

A significant share price dive has done very little to deflate Digital Imaging Technology's very lofty P/E. 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 Digital Imaging Technology maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Digital Imaging Technology (2 are potentially serious!) that we have uncovered.

If you're unsure about the strength of Digital Imaging Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.