Wakou Shokuhin Co., Ltd. (TSE:2813) Stock Rockets 26% But Many Are Still Ignoring The Company

Despite an already strong run, Wakou Shokuhin Co., Ltd. (TSE:2813) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 158% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Wakou Shokuhin's price-to-earnings (or "P/E") ratio of 12.4x is worth a mention when the median P/E in Japan is similar at about 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Wakou Shokuhin certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 Wakou Shokuhin

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

Is There Some Growth For Wakou Shokuhin?

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

Retrospectively, the last year delivered an exceptional 47% gain to the company's bottom line. Pleasingly, EPS has also lifted 854% 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.

Comparing that to the market, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's curious that Wakou Shokuhin's P/E sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Wakou Shokuhin appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Wakou Shokuhin revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Having said that, be aware Wakou Shokuhin is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on Wakou Shokuhin, 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.