Global Standard Technology, Limited (KOSDAQ:083450) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 63%.

Even after such a large jump in price, Global Standard Technology’s price-to-earnings (or “P/E”) ratio of 10.2x 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 15x and even P/E’s above 31x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s limited.

With earnings that are retreating more than the market’s of late, Global Standard Technology has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You’d much rather the company wasn’t bleeding earnings if you still believe in the business. 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.

See our latest analysis for Global Standard Technology

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

Is There Any Growth For Global Standard Technology?

The only time you’d be truly comfortable seeing a P/E as low as Global Standard Technology’s is when the company’s growth is on track to lag the market.

Taking a look back first, the company’s earnings per share growth last year wasn’t something to get excited about as it posted a disappointing decline of 32%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 66% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 19% during the coming year according to the sole analyst following the company. That’s shaping up to be materially lower than the 37% growth forecast for the broader market.

With this information, we can see why Global Standard Technology is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Global Standard Technology’s stock might have been given a solid boost, but its P/E certainly hasn’t reached any great heights. We’d say the price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Global Standard Technology’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.

You should always think about risks. Case in point, we’ve spotted 2 warning signs for Global Standard Technology you should be aware of.

Of course, you might also be able to find a better stock than Global Standard Technology. 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.