The Market Lifts Techno Ryowa Ltd. (TSE:1965) Shares 36% But It Can Do More

Explore Techno Ryowa's Fair Values from the Community and select yours

Techno Ryowa Ltd. (TSE:1965) shares have continued their recent momentum with a 36% gain in the last month alone. The last month tops off a massive increase of 278% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Techno Ryowa's price-to-earnings (or "P/E") ratio of 14.3x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times have been quite advantageous for Techno Ryowa as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Techno Ryowa

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 Techno Ryowa's earnings, revenue and cash flow.

Is There Some Growth For Techno Ryowa?

There's an inherent assumption that a company should be matching the market for P/E ratios like Techno Ryowa's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 65% last year. Pleasingly, EPS has also lifted 236% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.8% shows it's noticeably more attractive on an annualised basis.

In light of this, it's curious that Techno Ryowa's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Techno Ryowa appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Techno Ryowa 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. 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.

Before you take the next step, you should know about the 2 warning signs for Techno Ryowa that we have uncovered.

You might be able to find a better investment than Techno Ryowa. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.