Even With A 33% Surge, Cautious Investors Are Not Rewarding Ohmori Co.,Ltd.'s (TSE:1844) Performance Completely

Ohmori Co.,Ltd. (TSE:1844) 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 47% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think OhmoriLtd's price-to-earnings (or "P/E") ratio of 12.6x is worth a mention when the median P/E in Japan is similar at about 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

The earnings growth achieved at OhmoriLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for OhmoriLtd

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 OhmoriLtd's earnings, revenue and cash flow.

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

OhmoriLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a worthy increase of 15%. The latest three year period has also seen an excellent 60% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably more attractive on an annualised basis.

In light of this, it's curious that OhmoriLtd's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

OhmoriLtd's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

We've established that OhmoriLtd currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - OhmoriLtd has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on OhmoriLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.