A Piece Of The Puzzle Missing From Tsuburaya Fields Holdings Inc.'s (TSE:2767) 27% Share Price Climb

Tsuburaya Fields Holdings Inc. (TSE:2767) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Notwithstanding the latest gain, the annual share price return of 6.1% isn't as impressive.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Tsuburaya Fields Holdings' P/E ratio of 13.7x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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While the market has experienced earnings growth lately, Tsuburaya Fields Holdings' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Is There Some Growth For Tsuburaya Fields Holdings?

Tsuburaya Fields Holdings' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. Even so, admirably EPS has lifted 767% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 9.8% per year growth forecast for the broader market.

With this information, we find it interesting that Tsuburaya Fields Holdings is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Tsuburaya Fields Holdings' P/E?

Tsuburaya Fields Holdings' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Tsuburaya Fields Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 2 warning signs for Tsuburaya Fields Holdings (1 makes us a bit uncomfortable!) that we have uncovered.

You might be able to find a better investment than Tsuburaya Fields Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.