ISU Petasys Co., Ltd. (KRX:007660) Looks Just Right With A 25% Price Jump

Despite an already strong run, ISU Petasys Co., Ltd. (KRX:007660) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 110% in the last year.

After such a large jump in price, ISU Petasys' price-to-earnings (or "P/E") ratio of 54.3x might make it look like a strong 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 8x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With its earnings growth in positive territory compared to the declining earnings of most other companies, ISU Petasys has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for ISU Petasys

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Is There Enough Growth For ISU Petasys?

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

Retrospectively, the last year delivered an exceptional 80% gain to the company's bottom line. EPS has also lifted 14% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 27% each year during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that ISU Petasys' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From ISU Petasys' P/E?

Shares in ISU Petasys have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ISU Petasys' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with ISU Petasys (at least 1 which is significant), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.