INFOvine.co.,Ltd.'s (KOSDAQ:115310) 27% Share Price Surge Not Quite Adding Up

INFOvine.co.,Ltd. (KOSDAQ:115310) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days were the cherry on top of the stock's 312% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, INFOvine.co.Ltd's price-to-earnings (or "P/E") ratio of 18.4x 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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As an illustration, earnings have deteriorated at INFOvine.co.Ltd over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for INFOvine.co.Ltd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on INFOvine.co.Ltd's earnings, revenue and cash flow.

How Is INFOvine.co.Ltd's Growth Trending?

In order to justify its P/E ratio, INFOvine.co.Ltd would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 82% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 35% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that INFOvine.co.Ltd 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On INFOvine.co.Ltd's P/E

The large bounce in INFOvine.co.Ltd's shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of INFOvine.co.Ltd 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. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. 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 2 warning signs for INFOvine.co.Ltd that you need to take into consideration.

If these risks are making you reconsider your opinion on INFOvine.co.Ltd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.