Investors Appear Satisfied With Iofina plc's (LON:IOF) Prospects As Shares Rocket 28%

The Iofina plc (LON:IOF) share price has done very well over the last month, posting an excellent gain of 28%. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 12% in the last twelve months.

Following the firm bounce in price, Iofina's price-to-earnings (or "P/E") ratio of 29.5x might make it look like a sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 24x and even P/E's below 13x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Iofina as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Iofina

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

Is There Enough Growth For Iofina?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 94% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 320% as estimated by the one analyst watching the company. With the market only predicted to deliver 28%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Iofina's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Iofina's P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Iofina maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for Iofina (1 is potentially serious!) that we have uncovered.

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 P/E below 20x.

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This article by Simply Wall St is general in nature. 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.
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