Little Excitement Around LG Innotek Co., Ltd.'s (KRX:011070) Earnings As Shares Take 27% Pounding

The LG Innotek Co., Ltd. (KRX:011070) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

Even after such a large drop in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 11x, you may still consider LG Innotek as an attractive investment with its 6.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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LG Innotek hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for LG Innotek

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

Is There Any Growth For LG Innotek?

The only time you'd be truly comfortable seeing a P/E as low as LG Innotek's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 49% overall. 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 12% per year as estimated by the analysts watching the company. With the market predicted to deliver 18% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that LG Innotek's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

LG Innotek's recently weak share price has pulled its P/E below most other companies. 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.

As we suspected, our examination of LG Innotek's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for LG Innotek you should know about.

Of course, you might also be able to find a better stock than LG Innotek. 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.