SeA Mechanics Co., Ltd (KOSDAQ:396300) Not Doing Enough For Some Investors As Its Shares Slump 30%

SeA Mechanics Co., Ltd (KOSDAQ:396300) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 49% in that time.

Although its price has dipped substantially, SeA Mechanics' price-to-earnings (or "P/E") ratio of 8.3x might still 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 11x and even P/E's above 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, SeA Mechanics has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for SeA Mechanics

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

Is There Any Growth For SeA Mechanics?

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

Retrospectively, the last year delivered an exceptional 71% gain to the company's bottom line. EPS has also lifted 21% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 12% per year during the coming three years according to the sole analyst following the company. With the market predicted to deliver 15% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why SeA Mechanics is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On SeA Mechanics' P/E

SeA Mechanics' P/E has taken a tumble along with its share price. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of SeA Mechanics' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with SeA Mechanics (at least 1 which is concerning), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on SeA Mechanics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.