Broad-minded Co.,Ltd. (TSE:7343) Looks Just Right With A 30% Price Jump

Broad-minded Co.,Ltd. (TSE:7343) shares have continued their recent momentum with a 30% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 31%.

Since its price has surged higher, Broad-mindedLtd's price-to-earnings (or "P/E") ratio of 22.7x 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 14x 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.

While the market has experienced earnings growth lately, Broad-mindedLtd's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Broad-mindedLtd

Want the full picture on analyst estimates for the company? Then our free report on Broad-mindedLtd will help you uncover what's on the horizon.

Is There Enough Growth For Broad-mindedLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Broad-mindedLtd's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. Regardless, EPS has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 37% as estimated by the one analyst watching the company. With the market only predicted to deliver 11%, the company is positioned for a stronger earnings result.

With this information, we can see why Broad-mindedLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Broad-mindedLtd 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 Broad-mindedLtd'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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Broad-mindedLtd that you need to be mindful of.

You might be able to find a better investment than Broad-mindedLtd. 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.