Earnings Tell The Story For M&A Capital Partners Co.,Ltd. (TSE:6080) As Its Stock Soars 27%

M&A Capital Partners Co.,Ltd. (TSE:6080) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

Since its price has surged higher, M&A Capital PartnersLtd's price-to-earnings (or "P/E") ratio of 24.6x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 13x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

M&A Capital PartnersLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for M&A Capital PartnersLtd

Keen to find out how analysts think M&A Capital PartnersLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For M&A Capital PartnersLtd?

In order to justify its P/E ratio, M&A Capital PartnersLtd would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 46% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 29% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 30% per annum during the coming three years according to the three analysts following the company. With the market only predicted to deliver 9.4% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that M&A Capital PartnersLtd's 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 Final Word

Shares in M&A Capital PartnersLtd have built up some good momentum lately, which has really inflated its P/E. 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 M&A Capital PartnersLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for M&A Capital PartnersLtd with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than M&A Capital PartnersLtd. 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.