Earnings Not Telling The Story For PSK Inc. (KOSDAQ:319660) After Shares Rise 33%

PSK Inc. (KOSDAQ:319660) shares have had a really impressive month, gaining 33% after a shaky period beforehand. The last month tops off a massive increase of 119% in the last year.

Following the firm bounce in price, given around half the companies in Korea have price-to-earnings ratios (or “P/E’s”) below 13x, you may consider PSK as a stock to potentially avoid with its 16.2x P/E ratio. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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While the market has experienced earnings growth lately, PSK’s earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for PSK

Want the full picture on analyst estimates for the company? Then our free report on PSK will help you uncover what’s on the horizon.

Is There Enough Growth For PSK?

There’s an inherent assumption that a company should outperform the market for P/E ratios like PSK’s to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.9% decrease to the company’s bottom line. As a result, earnings from three years ago have also fallen 45% overall. Therefore, it’s fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 8.4% as estimated by the four analysts watching the company. That’s shaping up to be materially lower than the 36% growth forecast for the broader market.

With this information, we find it concerning that PSK is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren’t willing to let go of their stock at any price. There’s a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

PSK’s P/E is getting right up there since its shares have risen strongly. 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 PSK currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it’s very challenging to accept these prices as being reasonable.

Having said that, be aware PSK is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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

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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.