Earnings Tell The Story For Intops Co., Ltd. (KOSDAQ:049070) As Its Stock Soars 25%

Intops Co., Ltd. (KOSDAQ:049070) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

Since its price has surged higher, Intops may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 20.3x, since almost half of all companies in Korea have P/E ratios under 11x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Intops hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

See our latest analysis for Intops

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 78% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 114% over the next year. Meanwhile, the rest of the market is forecast to only expand by 33%, which is noticeably less attractive.

In light of this, it's understandable that Intops' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Intops' P/E

The strong share price surge has got Intops' P/E rushing to great heights as well. 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.

As we suspected, our examination of Intops' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Intops with six simple checks on some of these key factors.

You might be able to find a better investment than Intops. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.