Investors Appear Satisfied With Medy-Tox Inc.'s (KOSDAQ:086900) Prospects As Shares Rocket 26%

Medy-Tox Inc. (KOSDAQ:086900) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 27%.

Following the firm bounce in price, Medy-Tox may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 67.8x, 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.

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With earnings growth that's superior to most other companies of late, Medy-Tox has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Medy-Tox

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

Is There Enough Growth For Medy-Tox?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 81% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 83% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 69% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.

With this information, we can see why Medy-Tox is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Medy-Tox's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Medy-Tox maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Medy-Tox that you should be aware of.

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.