LIG Nex1 Co., Ltd.'s (KRX:079550) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider LIG Nex1 Co., Ltd. (KRX:079550) as a stock to avoid entirely with its 24.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

LIG Nex1 certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for LIG Nex1

Keen to find out how analysts think LIG Nex1's future stacks up against the industry? In that case, our free report is a great place to start.

How Is LIG Nex1's Growth Trending?

LIG Nex1's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. The strong recent performance means it was also able to grow EPS by 183% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 26% per year over the next three years. That's shaping up to be materially higher than the 20% per year growth forecast for the broader market.

In light of this, it's understandable that LIG Nex1'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.

What We Can Learn From LIG Nex1's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of LIG Nex1's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for LIG Nex1 with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than LIG Nex1. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.