Getting In Cheap On COPRO-HOLDINGS. Co., Ltd. (TSE:7059) Might Be Difficult

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider COPRO-HOLDINGS. Co., Ltd. (TSE:7059) as a stock to avoid entirely with its 22x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

COPRO-HOLDINGS certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for COPRO-HOLDINGS

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 COPRO-HOLDINGS' earnings, revenue and cash flow.

Is There Enough Growth For COPRO-HOLDINGS?

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

Retrospectively, the last year delivered an exceptional 67% gain to the company's bottom line. Pleasingly, EPS has also lifted 41% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.8% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that COPRO-HOLDINGS' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On COPRO-HOLDINGS' P/E

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.

We've established that COPRO-HOLDINGS maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for COPRO-HOLDINGS that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com