SUS Co.,Ltd. (TSE:6554) Looks Just Right With A 29% Price Jump

SUS Co.,Ltd. (TSE:6554) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, it's still not a stretch to say that SUSLtd's price-to-earnings (or "P/E") ratio of 12.7x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

SUSLtd has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to only match most other companies over the coming period, which has kept the P/E from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Check out our latest analysis for SUSLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SUSLtd's earnings, revenue and cash flow.

Does Growth Match The P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 6.1%. Pleasingly, EPS has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

In light of this, it's understandable that SUSLtd's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What We Can Learn From SUSLtd's P/E?

SUSLtd appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

As we suspected, our examination of SUSLtd revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for SUSLtd that you need to be mindful of.

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