Investors Still Aren't Entirely Convinced By Kamei Corporation's (TSE:8037) Earnings Despite 32% Price Jump

Kamei Corporation (TSE:8037) shareholders have had their patience rewarded with a 32% share price jump in the last month. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Kamei as a highly attractive investment with its 5.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Kamei has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Kamei

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

Is There Any Growth For Kamei?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Kamei's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.5% last year. This was backed up an excellent period prior to see EPS up by 62% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.2% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Kamei's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Kamei's P/E

Kamei's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

Our examination of Kamei revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Kamei with six simple checks on some of these key factors.

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