There's No Escaping INNOX Advanced Materials Co.,Ltd.'s (KOSDAQ:272290) Muted Earnings Despite A 27% Share Price Rise

The INNOX Advanced Materials Co.,Ltd. (KOSDAQ:272290) share price has done very well over the last month, posting an excellent gain of 27%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.2% in the last twelve months.

Even after such a large jump in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 14x, you may still consider INNOX Advanced MaterialsLtd as an attractive investment with its 7.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for INNOX Advanced MaterialsLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for INNOX Advanced MaterialsLtd

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

Is There Any Growth For INNOX Advanced MaterialsLtd?

The only time you'd be truly comfortable seeing a P/E as low as INNOX Advanced MaterialsLtd's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 89% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 18% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.7% during the coming year according to the dual analysts following the company. Meanwhile, the broader market is forecast to expand by 29%, which paints a poor picture.

In light of this, it's understandable that INNOX Advanced MaterialsLtd's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

The latest share price surge wasn't enough to lift INNOX Advanced MaterialsLtd's P/E close to the market median. 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 INNOX Advanced MaterialsLtd maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with INNOX Advanced MaterialsLtd (including 1 which makes us a bit uncomfortable).

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.