Eternal Hospitality Group Co.,Ltd.'s (TSE:3193) P/E Is Still On The Mark Following 26% Share Price Bounce

Those holding Eternal Hospitality Group Co.,Ltd. (TSE:3193) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 29%.

Since its price has surged higher, Eternal Hospitality GroupLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 21.4x, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Eternal Hospitality GroupLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Eternal Hospitality GroupLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Eternal Hospitality GroupLtd.

How Is Eternal Hospitality GroupLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Eternal Hospitality GroupLtd's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 245% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the two analysts watching the company. With the market only predicted to deliver 9.6% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Eternal Hospitality GroupLtd 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 Eternal Hospitality GroupLtd's P/E

Eternal Hospitality GroupLtd's P/E is flying high just like its stock has during the last month. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Eternal Hospitality GroupLtd'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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Eternal Hospitality GroupLtd you should know about.

You might be able to find a better investment than Eternal Hospitality GroupLtd. 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.