Food & Life Companies Ltd.'s (TSE:3563) P/E Is Still On The Mark Following 36% Share Price Bounce

Food & Life Companies Ltd. (TSE:3563) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.1% over the last year.

After such a large jump in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider Food & Life Companies as a stock to avoid entirely with its 24.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Food & Life Companies certainly has been doing a good job lately as it's been growing earnings more 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.

Check out our latest analysis for Food & Life Companies

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

How Is Food & Life Companies' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 213% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. 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 16% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 9.3% per year, which is noticeably less attractive.

In light of this, it's understandable that Food & Life Companies' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Food & Life Companies' P/E

The strong share price surge has got Food & Life Companies' P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Food & Life Companies' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Food & Life Companies that you should be aware of.

You might be able to find a better investment than Food & Life Companies. 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.