PharmaResearch Co., Ltd. (KOSDAQ:214450) Stocks Shoot Up 29% But Its P/E Still Looks Reasonable

PharmaResearch Co., Ltd. (KOSDAQ:214450) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 280% following the latest surge, making investors sit up and take notice.

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 52.5x, since almost half of all companies in Korea have P/E ratios under 13x and even P/E's lower than 7x 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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PharmaResearch certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for PharmaResearch

If you'd like to see what analysts are forecasting going forward, you should check out our free report on PharmaResearch.

What Are Growth Metrics Telling Us About The High P/E?

PharmaResearch's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 43% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 144% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 31% per year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 18% per year 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. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in PharmaResearch have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that PharmaResearch 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.

You always need to take note of risks, for example - PharmaResearch has 1 warning sign we think you should be aware of.

You might be able to find a better investment than PharmaResearch. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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