Not Many Are Piling Into KHVATEC Co.,Ltd. (KOSDAQ:060720) Stock Yet As It Plummets 26%

To the annoyance of some shareholders, KHVATEC Co.,Ltd. (KOSDAQ:060720) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.

In spite of the heavy fall in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 12x, you may still consider KHVATECLtd as an attractive investment with its 7.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for KHVATECLtd as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for KHVATECLtd

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

Is There Any Growth For KHVATECLtd?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 20% each year, which is not materially different.

In light of this, it's peculiar that KHVATECLtd's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From KHVATECLtd's P/E?

KHVATECLtd's P/E has taken a tumble along with its share price. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that KHVATECLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You need to take note of risks, for example - KHVATECLtd has 3 warning signs (and 1 which can't be ignored) we think you should know about.

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.

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