Fast Fitness Japan Incorporated (TSE:7092) Stock Catapults 25% Though Its Price And Business Still Lag The Market

Fast Fitness Japan Incorporated (TSE:7092) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, despite the strong performance over the last month, the full year gain of 7.4% isn't as attractive.

Although its price has surged higher, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Fast Fitness Japan as an attractive investment with its 11.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for Fast Fitness Japan has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Fast Fitness Japan

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

How Is Fast Fitness Japan's Growth Trending?

In order to justify its P/E ratio, Fast Fitness Japan would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. The latest three year period has also seen an excellent 93% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 5.6% per year over the next three years. With the market predicted to deliver 9.6% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Fast Fitness Japan's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Fast Fitness Japan's P/E?

The latest share price surge wasn't enough to lift Fast Fitness Japan's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Fast Fitness Japan maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Fast Fitness Japan that you should be aware of.

You might be able to find a better investment than Fast Fitness Japan. 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.