Investors Appear Satisfied With ANEST IWATA Corporation's (TSE:6381) Prospects As Shares Rocket 36%

ANEST IWATA Corporation (TSE:6381) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 6.1% isn't as attractive.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about ANEST IWATA's P/E ratio of 13.2x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. 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.

We've discovered 2 warning signs about ANEST IWATA. View them for free.

For instance, ANEST IWATA's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for ANEST IWATA

Although there are no analyst estimates available for ANEST IWATA, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is ANEST IWATA's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. Regardless, EPS has managed to lift by a handy 26% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.6% shows it's about the same on an annualised basis.

With this information, we can see why ANEST IWATA is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

ANEST IWATA's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 ANEST IWATA maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware ANEST IWATA is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on ANEST IWATA, 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.