KCTC Co. Ltd's (KRX:009070) Price Is Right But Growth Is Lacking

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") above 13x, you may consider KCTC Co. Ltd (KRX:009070) as a highly attractive investment with its 4.9x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at KCTC would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to degrade, 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 KCTC

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on KCTC will help you shine a light on its historical performance.

How Is KCTC's Growth Trending?

KCTC's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 5.4%. The latest three year period has also seen an excellent 95% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 32% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that KCTC'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 Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that KCTC maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for KCTC (of which 1 is potentially serious!) you should know about.

Of course, you might also be able to find a better stock than KCTC. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.