There's No Escaping Nice D&B Co., Ltd.'s (KOSDAQ:130580) Muted Earnings

Nice D&B Co., Ltd.'s (KOSDAQ:130580) price-to-earnings (or "P/E") ratio of 6.4x might make it look like a strong buy right now compared to the market in Korea, where around half of the companies have P/E ratios above 14x and even P/E's above 31x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Nice D&B as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

Check out our latest analysis for Nice D&B

Keen to find out how analysts think Nice D&B's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Nice D&B's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 20%. Still, incredibly EPS has fallen 5.4% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 4.3% over the next year. That's shaping up to be materially lower than the 36% growth forecast for the broader market.

In light of this, it's understandable that Nice D&B's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Nice D&B's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Nice D&B that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.