Why Investors Shouldn't Be Surprised By P&H Tech Co., Ltd.'s (KOSDAQ:239890) Low P/E

With a price-to-earnings (or "P/E") ratio of 7.8x P&H Tech Co., Ltd. (KOSDAQ:239890) may be sending bullish signals at the moment, given that almost half of all companies in Korea have P/E ratios greater than 12x and even P/E's higher than 23x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

P&H Tech certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for P&H Tech

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

How Is P&H Tech's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as P&H Tech's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 74% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 16% each year, which is noticeably more attractive.

In light of this, it's understandable that P&H Tech's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On P&H Tech's P/E

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.

We've established that P&H Tech maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for P&H Tech 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.