MAKUS Inc.'s (KOSDAQ:093520) Shares Bounce 41% But Its Business Still Trails The Market

Despite an already strong run, MAKUS Inc. (KOSDAQ:093520) shares have been powering on, with a gain of 41% in the last thirty days. The last month tops off a massive increase of 108% in the last year.

In spite of the firm bounce in price, given about half the companies in Korea have price-to-earnings ratios (or "P/E's") above 14x, you may still consider MAKUS as an attractive investment with its 8.1x P/E ratio. 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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With earnings growth that's superior to most other companies of late, MAKUS has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for MAKUS

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

How Is MAKUS' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as MAKUS' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 60% gain to the company's bottom line. The latest three year period has also seen a 15% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 9.6% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 18% per annum, which paints a poor picture.

With this information, we are not surprised that MAKUS is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. 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. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising 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 MAKUS that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.