When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider ASICS Corporation (TSE:7936) as a stock to avoid entirely with its 36.6x 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.
Recent times have been advantageous for ASICS as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for ASICS
Is There Enough Growth For ASICS?
In order to justify its P/E ratio, ASICS would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered an exceptional 64% gain to the company's bottom line. The latest three year period has also seen an excellent 864% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 14% per annum during the coming three years according to the nine analysts following the company. With the market only predicted to deliver 11% each year, the company is positioned for a stronger earnings result.
With this information, we can see why ASICS is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On ASICS' P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that ASICS maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for ASICS with six simple checks.
If these risks are making you reconsider your opinion on ASICS, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
About TSE:7936
ASICS
Manufactures and sells sporting goods in Japan, North America, Europe, China, Oceania, Southeast and South Asia, and internationally.
Solid track record with excellent balance sheet.
