Insufficient Growth At SAMT Co., Ltd. (KOSDAQ:031330) Hampers Share Price

SAMT Co., Ltd.'s (KOSDAQ:031330) price-to-earnings (or "P/E") ratio of 7.3x 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 12x and even P/E's above 23x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at SAMT over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for SAMT

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SAMT's earnings, revenue and cash flow.

How Is SAMT's Growth Trending?

In order to justify its P/E ratio, SAMT would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 18% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 31% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that SAMT's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On SAMT'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.

As we suspected, our examination of SAMT revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware SAMT is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If you're unsure about the strength of SAMT'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com