Subdued Growth No Barrier To Iljin Diamond Co.,Ltd (KRX:081000) With Shares Advancing 28%

Iljin Diamond Co.,Ltd (KRX:081000) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Iljin DiamondLtd's price-to-earnings (or "P/E") ratio of 19.3x might make it look like a sell right now compared to the market in Korea, where around half of the companies have P/E ratios below 14x and even P/E's below 7x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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Earnings have risen at a steady rate over the last year for Iljin DiamondLtd, which is generally not a bad outcome. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Iljin DiamondLtd

Although there are no analyst estimates available for Iljin DiamondLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.6% last year. The latest three year period has also seen an excellent 67% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 33% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Iljin DiamondLtd is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Iljin DiamondLtd's P/E

Iljin DiamondLtd shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of Iljin DiamondLtd revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Iljin DiamondLtd that you need to take into consideration.

Of course, you might also be able to find a better stock than Iljin DiamondLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.