Serendip Holdings Co.,Ltd. (TSE:7318) Stock Rockets 25% But Many Are Still Ignoring The Company

Serendip Holdings Co.,Ltd. (TSE:7318) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Serendip HoldingsLtd's price-to-earnings (or "P/E") ratio of 7.5x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Serendip HoldingsLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

Check out our latest analysis for Serendip HoldingsLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Serendip HoldingsLtd's earnings, revenue and cash flow.

Is There Any Growth For Serendip HoldingsLtd?

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

If we review the last year of earnings growth, the company posted a terrific increase of 291%. The strong recent performance means it was also able to grow EPS by 845% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 8.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Serendip HoldingsLtd is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Serendip HoldingsLtd's P/E

The latest share price surge wasn't enough to lift Serendip HoldingsLtd's P/E close to the market median. 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 Serendip HoldingsLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Serendip HoldingsLtd that 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.