Ecoplastic Corporation (KOSDAQ:038110) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.
In spite of the firm bounce in price, Ecoplastic’s price-to-earnings (or “P/E”) ratio of 9.4x 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 12x and even P/E’s above 25x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.
Our free stock report includes 6 warning signs investors should be aware of before investing in Ecoplastic. Read for free now.
For instance, Ecoplastic’s receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won’t do enough to avoid underperforming the broader market in the near future. However, if this doesn’t eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
View our latest analysis for Ecoplastic
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ecoplastic’s earnings, revenue and cash flow.
How Is Ecoplastic’s Growth Trending?
There’s an inherent assumption that a company should underperform the market for P/E ratios like Ecoplastic’s to be considered reasonable.
Retrospectively, the last year delivered a frustrating 73% decrease to the company’s bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 106% in total over the last three years. Although it’s been a bumpy ride, it’s still fair to say the earnings growth recently has been more than adequate for the company.
Comparing that to the market, which is only predicted to deliver 22% growth in the next 12 months, the company’s momentum is stronger based on recent medium-term annualised earnings results.
With this information, we find it odd that Ecoplastic is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Final Word
Ecoplastic’s stock might have been given a solid boost, but its P/E certainly hasn’t reached any great heights. 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 Ecoplastic currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
You should always think about risks. Case in point, we’ve spotted 6 warning signs for Ecoplastic you should be aware of, and 2 of them are a bit unpleasant.
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.
Valuation is complex, but we’re here to simplify it.
Discover if Ecoplastic might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.
