IG Port, Inc.'s (TSE:3791) 47% Share Price Surge Not Quite Adding Up

IG Port, Inc. (TSE:3791) shareholders have had their patience rewarded with a 47% share price jump in the last month. The last month tops off a massive increase of 109% in the last year.

Following the firm bounce in price, IG Port may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 26.4x, since almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, IG Port has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for IG Port

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What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, IG Port would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 497% gain to the company's bottom line. The latest three year period has also seen an excellent 106% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings growth is heading into negative territory, declining 80% over the next year. Meanwhile, the broader market is forecast to expand by 9.7%, which paints a poor picture.

With this information, we find it concerning that IG Port is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

What We Can Learn From IG Port's P/E?

Shares in IG Port have built up some good momentum lately, which has really inflated its P/E. 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 IG Port currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for IG Port you should know about.

If you're unsure about the strength of IG Port's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com