Inui Global Logistics Co., Ltd. (TSE:9308) Stock Catapults 29% Though Its Price And Business Still Lag The Market

The Inui Global Logistics Co., Ltd. (TSE:9308) share price has done very well over the last month, posting an excellent gain of 29%. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

Although its price has surged higher, Inui Global Logistics' price-to-earnings (or "P/E") ratio of 9.1x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Inui Global Logistics as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Inui Global Logistics

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 Inui Global Logistics' earnings, revenue and cash flow.

How Is Inui Global Logistics' Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 66%. Still, incredibly EPS has fallen 25% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this information, we are not surprised that Inui Global Logistics is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

The latest share price surge wasn't enough to lift Inui Global Logistics' P/E close to the market median. 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.

We've established that Inui Global Logistics maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Inui Global Logistics you should know about.

If you're unsure about the strength of Inui Global Logistics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.