Suzumo Machinery Company Limited's (TSE:6405) P/E Is Still On The Mark Following 26% Share Price Bounce

Suzumo Machinery Company Limited (TSE:6405) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 90% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Suzumo Machinery's P/E ratio of 14.7x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. 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.

With earnings growth that's superior to most other companies of late, Suzumo Machinery has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Suzumo Machinery

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

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

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

Retrospectively, the last year delivered an exceptional 121% gain to the company's bottom line. The latest three year period has also seen an excellent 57% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 9.5% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 10% each year, which is not materially different.

In light of this, it's understandable that Suzumo Machinery's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Suzumo Machinery's P/E?

Suzumo Machinery appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Suzumo Machinery's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

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

Of course, you might also be able to find a better stock than Suzumo Machinery. 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.