Optimistic Investors Push Namura Shipbuilding Co., Ltd. (TSE:7014) Shares Up 59% But Growth Is Lacking

Despite an already strong run, Namura Shipbuilding Co., Ltd. (TSE:7014) shares have been powering on, with a gain of 59% in the last thirty days. The last month tops off a massive increase of 234% in the last year.

After such a large jump in price, Namura Shipbuilding may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.7x, since almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 10x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, Namura Shipbuilding's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Namura Shipbuilding

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How Is Namura Shipbuilding's Growth Trending?

In order to justify its P/E ratio, Namura Shipbuilding would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. Even so, admirably EPS has lifted 217% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 10% each year as estimated by the lone analyst watching the company. That's shaping up to be similar to the 9.6% each year growth forecast for the broader market.

In light of this, it's curious that Namura Shipbuilding's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

The large bounce in Namura Shipbuilding's shares has lifted the company's P/E to a fairly high level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Namura Shipbuilding's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Namura Shipbuilding that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.