What You Can Learn From ISU Petasys Co., Ltd.'s (KRX:007660) P/E After Its 25% Share Price Crash

ISU Petasys Co., Ltd. (KRX:007660) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. The last month has meant the stock is now only up 9.9% during the last year.

Even after such a large drop in price, ISU Petasys may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 56.1x, since almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

ISU Petasys has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for ISU Petasys

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

How Is ISU Petasys' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as ISU Petasys' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 52% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 368% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 55% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 20% per year, which is noticeably less attractive.

With this information, we can see why ISU Petasys is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Even after such a strong price drop, ISU Petasys' P/E still exceeds the rest of the market significantly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that ISU Petasys maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for ISU Petasys (1 is concerning!) that we have uncovered.

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.

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

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