Hancom Inc. (KOSDAQ:030520) Looks Inexpensive But Perhaps Not Attractive Enough

Hancom Inc.'s (KOSDAQ:030520) price-to-earnings (or "P/E") ratio of 11.9x might make it look like a buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 21x and even P/E's above 48x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Hancom has been doing relatively well. 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.

View our latest analysis for Hancom

Keen to find out how analysts think Hancom's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Hancom?

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

If we review the last year of earnings growth, the company posted a terrific increase of 186%. The latest three year period has also seen an excellent 92% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 7.8% during the coming year according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 48%, which is noticeably more attractive.

In light of this, it's understandable that Hancom's P/E sits below the majority of other companies. 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 Hancom's 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 Hancom 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.

Plus, you should also learn about this 1 warning sign we've spotted with Hancom.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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This article by Simply Wall St is general in nature. 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.
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