Investors Interested In Hokkaido Coca-Cola Bottling Co.,Ltd.'s (TSE:2573) Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 11x, you may consider Hokkaido Coca-Cola Bottling Co.,Ltd. (TSE:2573) as a stock to avoid entirely with its 19.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Hokkaido Coca-Cola BottlingLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Hokkaido Coca-Cola BottlingLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hokkaido Coca-Cola BottlingLtd will help you shine a light on its historical performance.

Is There Enough Growth For Hokkaido Coca-Cola BottlingLtd?

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

If we review the last year of earnings growth, the company posted a terrific increase of 119%. The strong recent performance means it was also able to grow EPS by 172% in total over the last three years. Accordingly, shareholders would have probably welcomed those 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 lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Hokkaido Coca-Cola BottlingLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Hokkaido Coca-Cola BottlingLtd's P/E

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 Hokkaido Coca-Cola BottlingLtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Hokkaido Coca-Cola BottlingLtd that we have uncovered.

You might be able to find a better investment than Hokkaido Coca-Cola BottlingLtd. 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).

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

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