Further Upside For Japan Investment Adviser Co., Ltd. (TSE:7172) Shares Could Introduce Price Risks After 30% Bounce

Japan Investment Adviser Co., Ltd. (TSE:7172) shareholders have had their patience rewarded with a 30% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 66%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Japan Investment Adviser's P/E ratio of 11.4x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Japan Investment Adviser as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Japan Investment Adviser

Want the full picture on analyst estimates for the company? Then our free report on Japan Investment Adviser will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Japan Investment Adviser's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 71% gain to the company's bottom line. Pleasingly, EPS has also lifted 37% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 23% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 11% growth forecast for the broader market.

In light of this, it's curious that Japan Investment Adviser's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Japan Investment Adviser's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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.

Our examination of Japan Investment Adviser's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Japan Investment Adviser, and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.