Tsuburaya Fields Holdings Inc.'s (TSE:2767) 30% Price Boost Is Out Of Tune With Earnings

Despite an already strong run, Tsuburaya Fields Holdings Inc. (TSE:2767) shares have been powering on, with a gain of 30% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.

Even after such a large jump in price, there still wouldn't be many who think Tsuburaya Fields Holdings' price-to-earnings (or "P/E") ratio of 12.5x is worth a mention when the median P/E in Japan is similar at about 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Tsuburaya Fields Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Tsuburaya Fields Holdings

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Is There Some Growth For Tsuburaya Fields Holdings?

In order to justify its P/E ratio, Tsuburaya Fields Holdings would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 21% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 4.0% each year as estimated by the only analyst watching the company. With the market predicted to deliver 9.4% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Tsuburaya Fields Holdings is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

Tsuburaya Fields Holdings appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware Tsuburaya Fields Holdings is showing 2 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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