What Bio Plus Co., Ltd's (KOSDAQ:099430) 26% Share Price Gain Is Not Telling You

Bio Plus Co., Ltd (KOSDAQ:099430) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 30%.

After such a large jump in price, given close to half the companies in Korea have price-to-earnings ratios (or "P/E's") below 11x, you may consider Bio Plus as a stock to avoid entirely with its 34.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Our free stock report includes 2 warning signs investors should be aware of before investing in Bio Plus. Read for free now.

For instance, Bio Plus' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Bio Plus

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 Bio Plus' earnings, revenue and cash flow.

Is There Enough Growth For Bio Plus?

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

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Bio Plus' P/E sits above the majority of other companies. 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 Final Word

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

Our examination of Bio Plus 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.

Before you take the next step, you should know about the 2 warning signs for Bio Plus (1 is a bit concerning!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.