Risks To Shareholder Returns Are Elevated At These Prices For Noritsu Koki Co., Ltd. (TSE:7744)

With a median price-to-earnings (or "P/E") ratio of close to 13x in Japan, you could be forgiven for feeling indifferent about Noritsu Koki Co., Ltd.'s (TSE:7744) P/E ratio of 11.3x. 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 1 warning sign about Noritsu Koki. View them for free.

Recent times have been advantageous for Noritsu Koki 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Noritsu Koki

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

How Is Noritsu Koki's Growth Trending?

The only time you'd be comfortable seeing a P/E like Noritsu Koki's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 39% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 138% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 4.0% per year during the coming three years according to the two analysts following the company. With the market predicted to deliver 9.8% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Noritsu Koki's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Noritsu Koki's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Noritsu Koki 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Noritsu Koki, and understanding should be part of your investment process.

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.