TSI Holdings Co.,Ltd.'s (TSE:3608) P/E Is Still On The Mark Following 29% Share Price Bounce

Despite an already strong run, TSI Holdings Co.,Ltd. (TSE:3608) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 94% in the last year.

Since its price has surged higher, TSI HoldingsLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 54.1x, since almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent earnings growth for TSI HoldingsLtd has been in line with the market. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for TSI HoldingsLtd

Keen to find out how analysts think TSI HoldingsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TSI HoldingsLtd's Growth Trending?

In order to justify its P/E ratio, TSI HoldingsLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 89% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 421% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 12% growth forecast for the broader market.

With this information, we can see why TSI HoldingsLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got TSI HoldingsLtd's P/E rushing to great heights as well. 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.

As we suspected, our examination of TSI HoldingsLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware TSI HoldingsLtd is showing 3 warning signs in our investment analysis, and 1 of those is concerning.

If you're unsure about the strength of TSI HoldingsLtd's 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.