Getting In Cheap On LG Uplus Corp. (KRX:032640) Might Be Difficult

It's not a stretch to say that LG Uplus Corp.'s (KRX:032640) price-to-earnings (or "P/E") ratio of 12.9x right now seems quite "middle-of-the-road" compared to the market in Korea, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Recent times haven't been advantageous for LG Uplus as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to revert back to market averages soon, which has kept the P/E from falling. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

See our latest analysis for LG Uplus

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

Is There Some Growth For LG Uplus?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 27% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 18% each year over the next three years. With the market predicted to deliver 18% growth per year, the company is positioned for a comparable earnings result.

With this information, we can see why LG Uplus is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On LG Uplus' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that LG Uplus maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 3 warning signs for LG Uplus that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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.