Optimistic Investors Push Nippon Beet Sugar Manufacturing Co.,Ltd. (TSE:2108) Shares Up 30% But Growth Is Lacking

The Nippon Beet Sugar Manufacturing Co.,Ltd. (TSE:2108) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

After such a large jump in price, Nippon Beet Sugar ManufacturingLtd's price-to-earnings (or "P/E") ratio of 18.2x 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 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, Nippon Beet Sugar ManufacturingLtd has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Nippon Beet Sugar ManufacturingLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Nippon Beet Sugar ManufacturingLtd's earnings, revenue and cash flow.

How Is Nippon Beet Sugar ManufacturingLtd's Growth Trending?

Nippon Beet Sugar ManufacturingLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 48% gain to the company's bottom line. As a result, it also grew EPS by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 9.9% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Nippon Beet Sugar ManufacturingLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

The large bounce in Nippon Beet Sugar ManufacturingLtd's shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Nippon Beet Sugar ManufacturingLtd currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Nippon Beet Sugar ManufacturingLtd that you need to be mindful of.

If these risks are making you reconsider your opinion on Nippon Beet Sugar ManufacturingLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com