After Leaping 26% With us Corporation (TSE:9696) Shares Are Not Flying Under The Radar

With us Corporation (TSE:9696) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Since its price has surged higher, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider With us as a stock to potentially avoid with its 17.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With us 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for With us

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

How Is With us' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as With us' is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 7.7% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 9.6% each year growth forecast for the broader market.

With this information, we can see why With us 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 Key Takeaway

With us shares have received a push in the right direction, but its P/E is elevated too. 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 With us' 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for With us that you should be aware of.

If you're unsure about the strength of With us' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.