MAKUS Inc.'s (KOSDAQ:093520) Price Is Right But Growth Is Lacking After Shares Rocket 35%

MAKUS Inc. (KOSDAQ:093520) shares have had a really impressive month, gaining 35% after a shaky period beforehand. The last month tops off a massive increase of 212% in the last year.

In spite of the firm bounce in price, MAKUS may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.1x, since almost half of all companies in Korea have P/E ratios greater than 15x and even P/E's higher than 36x are not unusual. 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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MAKUS certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for MAKUS

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

Is There Any Growth For MAKUS?

In order to justify its P/E ratio, MAKUS would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 112% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 83% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 0.9% each year over the next three years. That's not great when the rest of the market is expected to grow by 19% per year.

With this information, we are not surprised that MAKUS is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Despite MAKUS' shares building up a head of steam, its P/E still lags most other companies. 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 MAKUS' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.