Even With A 29% Surge, Cautious Investors Are Not Rewarding Shin Nippon Air Technologies Co., Ltd.'s (TSE:1952) Performance Completely

Explore Shin Nippon Air Technologies's Fair Values from the Community and select yours

Despite an already strong run, Shin Nippon Air Technologies Co., Ltd. (TSE:1952) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 81%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shin Nippon Air Technologies' P/E ratio of 14.8x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Shin Nippon Air Technologies certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform 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 not quite in favour.

Check out our latest analysis for Shin Nippon Air Technologies

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shin Nippon Air Technologies will help you shine a light on its historical performance.

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

The only time you'd be comfortable seeing a P/E like Shin Nippon Air Technologies' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 36% last year. The strong recent performance means it was also able to grow EPS by 84% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 8.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Shin Nippon Air Technologies is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Shin Nippon Air Technologies appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Shin Nippon Air Technologies currently trades on a 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 pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shin Nippon Air Technologies you should know about.

Of course, you might also be able to find a better stock than Shin Nippon Air Technologies. 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.