What You Can Learn From INNOX Advanced Materials Co.,Ltd.'s (KOSDAQ:272290) P/E After Its 26% Share Price Crash

INNOX Advanced Materials Co.,Ltd. (KOSDAQ:272290) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 31% share price drop.

Even after such a large drop in price, INNOX Advanced MaterialsLtd's price-to-earnings (or "P/E") ratio of 14.7x might still 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 12x and even P/E's below 6x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

INNOX Advanced MaterialsLtd has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for INNOX Advanced MaterialsLtd

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

How Is INNOX Advanced MaterialsLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as INNOX Advanced MaterialsLtd's is when the company's growth is on track to outshine 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 38%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 22% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 29% per annum as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 20% each year growth forecast for the broader market.

With this information, we can see why INNOX Advanced MaterialsLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On INNOX Advanced MaterialsLtd's P/E

INNOX Advanced MaterialsLtd's P/E hasn't come down all the way after its stock plunged. 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 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.

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

Of course, you might also be able to find a better stock than INNOX Advanced MaterialsLtd. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com