KBC Corporation, Ltd. (SHSE:688598) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.
In spite of the heavy fall in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may still consider KBC Corporation as an attractive investment with its 16.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Recent times haven't been advantageous for KBC Corporation as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.
How Is KBC Corporation's Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like KBC Corporation's to be considered reasonable.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. Still, the latest three year period has seen an excellent 115% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.
Turning to the outlook, the next year should generate growth of 87% as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 42%, which is noticeably less attractive.
In light of this, it's peculiar that KBC Corporation's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What We Can Learn From KBC Corporation's P/E?
KBC Corporation's P/E has taken a tumble along with its share price. 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 KBC Corporation currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
You should always think about risks. Case in point, we've spotted 2 warning signs for KBC Corporation you should be aware of, and 1 of them is a bit concerning.
If these risks are making you reconsider your opinion on KBC Corporation, 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.