Yoshimura Food Holdings K.K. (TSE:2884) Looks Just Right With A 25% Price Jump

Yoshimura Food Holdings K.K. (TSE:2884) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

After such a large jump in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Yoshimura Food Holdings K.K as a stock to avoid entirely with its 52.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Yoshimura Food Holdings K.K could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Yoshimura Food Holdings K.K

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yoshimura Food Holdings K.K.

Is There Enough Growth For Yoshimura Food Holdings K.K?

The only time you'd be truly comfortable seeing a P/E as steep as Yoshimura Food Holdings K.K's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's bottom line. Even so, admirably EPS has lifted 326% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 138% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 11%, which is noticeably less attractive.

With this information, we can see why Yoshimura Food Holdings K.K is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Yoshimura Food Holdings K.K's P/E is flying high just like its stock has during the last month. 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 Yoshimura Food Holdings K.K's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Yoshimura Food Holdings K.K (of which 1 is concerning!) you should know about.

You might be able to find a better investment than Yoshimura Food Holdings K.K. 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.