Earnings Tell The Story For LOTTE INNOVATE Co.,Ltd (KRX:286940) As Its Stock Soars 35%

The LOTTE INNOVATE Co.,Ltd (KRX:286940) share price has done very well over the last month, posting an excellent gain of 35%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.4% in the last twelve months.

Since its price has surged higher, LOTTE INNOVATELtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 34.9x, since almost half of all companies in Korea have P/E ratios under 12x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

LOTTE INNOVATELtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for LOTTE INNOVATELtd

Want the full picture on analyst estimates for the company? Then our free report on LOTTE INNOVATELtd will help you uncover what's on the horizon.

How Is LOTTE INNOVATELtd's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 72%. This means it has also seen a slide in earnings over the longer-term as EPS is down 57% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 37% per annum as estimated by the six analysts watching the company. With the market only predicted to deliver 17% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why LOTTE INNOVATELtd 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 LOTTE INNOVATELtd's P/E

Shares in LOTTE INNOVATELtd have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that LOTTE INNOVATELtd 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for LOTTE INNOVATELtd that you should be aware of.

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

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

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.