Market Participants Recognise Fast Fitness Japan Incorporated's (TSE:7092) Earnings Pushing Shares 28% Higher

Despite an already strong run, Fast Fitness Japan Incorporated (TSE:7092) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 71%.

After such a large jump in price, Fast Fitness Japan's price-to-earnings (or "P/E") ratio of 19.6x might make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 10x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Fast Fitness Japan has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Fast Fitness Japan

Keen to find out how analysts think Fast Fitness Japan's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Fast Fitness Japan would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. As a result, it also grew EPS by 29% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the dual analysts watching the company. With the market only predicted to deliver 9.5% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Fast Fitness Japan is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in Fast Fitness Japan's shares has lifted the company's P/E to a fairly high level. 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 Fast Fitness Japan's 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. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Fast Fitness Japan, and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Fast Fitness Japan. 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.