Investors Appear Satisfied With PharmaResearch Co., Ltd.'s (KOSDAQ:214450) Prospects As Shares Rocket 30%

Despite an already strong run, PharmaResearch Co., Ltd. (KOSDAQ:214450) shares have been powering on, with a gain of 30% in the last thirty days. The last month tops off a massive increase of 241% in the last year.

Since its price has surged higher, PharmaResearch may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 36.6x, since almost half of all companies in Korea have P/E ratios under 12x 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.

Recent times have been advantageous for PharmaResearch as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for PharmaResearch

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

Is There Enough Growth For PharmaResearch?

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

If we review the last year of earnings growth, the company posted a terrific increase of 34%. The latest three year period has also seen an excellent 78% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 38% during the coming year according to the eight analysts following the company. That's shaping up to be materially higher than the 26% growth forecast for the broader market.

With this information, we can see why PharmaResearch is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has got PharmaResearch'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.

As we suspected, our examination of PharmaResearch's 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. Unless these conditions change, they will continue to provide strong support to the share price.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.