Bora Pharmaceuticals Co., LTD. (TWSE:6472) Stock Rockets 33% As Investors Are Less Pessimistic Than Expected

Bora Pharmaceuticals Co., LTD. (TWSE:6472) shareholders have had their patience rewarded with a 33% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

Following the firm bounce in price, given around half the companies in Taiwan have price-to-earnings ratios (or "P/E's") below 23x, you may consider Bora Pharmaceuticals as a stock to potentially avoid with its 27.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Bora Pharmaceuticals has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Bora Pharmaceuticals

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

Is There Enough Growth For Bora Pharmaceuticals?

In order to justify its P/E ratio, Bora Pharmaceuticals would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 112% last year. The latest three year period has also seen an excellent 396% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 8.8% over the next year. That's shaping up to be materially lower than the 26% growth forecast for the broader market.

In light of this, it's alarming that Bora Pharmaceuticals' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Bora Pharmaceuticals' P/E?

Bora Pharmaceuticals' P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Bora Pharmaceuticals currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Bora Pharmaceuticals is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Bora Pharmaceuticals. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.