ICO Group Limited (HKG:1460) Stock Rockets 27% But Many Are Still Ignoring The Company

ICO Group Limited (HKG:1460) shareholders have had their patience rewarded with a 27% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

In spite of the firm bounce in price, ICO Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7x, since almost half of all companies in Hong Kong have P/E ratios greater than 10x and even P/E's higher than 20x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

ICO Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for ICO Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on ICO Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 142% gain to the company's bottom line. Pleasingly, EPS has also lifted 135% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that ICO Group's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From ICO Group's P/E?

ICO Group's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of ICO Group revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - ICO Group has 3 warning signs (and 2 which are significant) we think you should know about.

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.