Iljin Electric Co.,Ltd's (KRX:103590) 46% Jump Shows Its Popularity With Investors

Iljin Electric Co.,Ltd (KRX:103590) shareholders would be excited to see that the share price has had a great month, posting a 46% gain and recovering from prior weakness. The last month tops off a massive increase of 108% in the last year.

After such a large jump in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 14x, you may consider Iljin ElectricLtd as a stock to avoid entirely with its 35.7x P/E ratio. 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 pleasing for Iljin ElectricLtd as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Iljin ElectricLtd

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

How Is Iljin ElectricLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. Pleasingly, EPS has also lifted 180% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 23% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

With this information, we can see why Iljin ElectricLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Iljin ElectricLtd's P/E rushing to great heights as well. 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.

As we suspected, our examination of Iljin ElectricLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Iljin ElectricLtd, and understanding should be part of your investment process.

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.