Why Investors Shouldn't Be Surprised By LIG Nex1 Co., Ltd.'s (KRX:079550) 25% Share Price Surge

Explore LIG Nex1's Fair Values from the Community and select yours

LIG Nex1 Co., Ltd. (KRX:079550) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 221% in the last year.

Since its price has surged higher, LIG Nex1's price-to-earnings (or "P/E") ratio of 54.5x might make it look like a strong sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Recent times have been advantageous for LIG Nex1 as its earnings have been rising faster 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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LIG Nex1.

How Is LIG Nex1's Growth Trending?

In order to justify its P/E ratio, LIG Nex1 would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. The latest three year period has also seen an excellent 93% 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 analysts covering the company suggest earnings should grow by 28% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 18% each year, which is noticeably less attractive.

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.

The Bottom Line On LIG Nex1's P/E

The strong share price surge has got LIG Nex1's P/E rushing to great heights as well. 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 LIG Nex1 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 settle on your opinion, we've discovered 1 warning sign for LIG Nex1 that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.