With TORIDOLL Holdings Corporation (TSE:3397) It Looks Like You'll Get What You Pay For

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider TORIDOLL Holdings Corporation (TSE:3397) as a stock to avoid entirely with its 77.5x 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.

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TORIDOLL Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for TORIDOLL Holdings

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

Does Growth Match The High P/E?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.8%. The last three years don't look nice either as the company has shrunk EPS by 9.8% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 44% during the coming year according to the four analysts following the company. With the market only predicted to deliver 9.5%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that TORIDOLL Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that TORIDOLL Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for TORIDOLL Holdings you should be aware of.

Of course, you might also be able to find a better stock than TORIDOLL Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.