Why Investors Shouldn't Be Surprised By Iljin Electric Co.,Ltd's (KRX:103590) 28% Share Price Surge

Iljin Electric Co.,Ltd (KRX:103590) shareholders have had their patience rewarded with a 28% share price jump in the last month. The annual gain comes to 168% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Iljin ElectricLtd's price-to-earnings (or "P/E") ratio of 33.4x 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 11x and even P/E's below 6x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Iljin ElectricLtd's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Iljin ElectricLtd

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

Is There Enough Growth For Iljin ElectricLtd?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 107% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 77% as estimated by the four analysts watching the company. With the market only predicted to deliver 34%, the company is positioned for a stronger earnings result.

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

Iljin ElectricLtd's P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Iljin ElectricLtd 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Iljin ElectricLtd that you need to be mindful of.

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.