Fuji Oil Holdings Inc. (TSE:2607) Looks Just Right With A 25% Price Jump

Fuji Oil Holdings Inc. (TSE:2607) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

Following the firm bounce in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Fuji Oil Holdings as a stock to avoid entirely with its 38.4x P/E ratio. 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.

Fuji Oil Holdings could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Fuji Oil Holdings

Keen to find out how analysts think Fuji Oil Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Fuji Oil Holdings' Growth Trending?

Fuji Oil Holdings' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.5% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 41% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 34% each year over the next three years. With the market only predicted to deliver 9.6% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Fuji Oil Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Fuji Oil Holdings' P/E is flying high just like its stock has during the last month. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Fuji Oil Holdings' 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.

It is also worth noting that we have found 2 warning signs for Fuji Oil Holdings that you need to take into consideration.

Of course, you might also be able to find a better stock than Fuji Oil Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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