Optimistic Investors Push HIRANO TECSEED Co.,Ltd. (TSE:6245) Shares Up 27% But Growth Is Lacking

HIRANO TECSEED Co.,Ltd. (TSE:6245) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, you could still be forgiven for feeling indifferent about HIRANO TECSEEDLtd's P/E ratio of 13.6x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for HIRANO TECSEEDLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong 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.

See our latest analysis for HIRANO TECSEEDLtd

Keen to find out how analysts think HIRANO TECSEEDLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is HIRANO TECSEEDLtd's Growth Trending?

In order to justify its P/E ratio, HIRANO TECSEEDLtd would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. The latest three year period has also seen an excellent 135% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 4.7% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 11%, which is noticeably more attractive.

With this information, we find it interesting that HIRANO TECSEEDLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On HIRANO TECSEEDLtd's P/E

HIRANO TECSEEDLtd 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 HIRANO TECSEEDLtd currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for HIRANO TECSEEDLtd you should know about.

You might be able to find a better investment than HIRANO TECSEEDLtd. 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.