Further Upside For Japan Animal Referral Medical Center Co., Ltd. (TSE:6039) Shares Could Introduce Price Risks After 26% Bounce

Despite an already strong run, Japan Animal Referral Medical Center Co., Ltd. (TSE:6039) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

Although its price has surged higher, it's still not a stretch to say that Japan Animal Referral Medical Center's price-to-earnings (or "P/E") ratio of 14.3x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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With earnings growth that's exceedingly strong of late, Japan Animal Referral Medical Center has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. 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.

View our latest analysis for Japan Animal Referral Medical Center

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 Japan Animal Referral Medical Center's earnings, revenue and cash flow.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Japan Animal Referral Medical Center's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 48% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 75% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Japan Animal Referral Medical Center is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Japan Animal Referral Medical Center's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Japan Animal Referral Medical Center currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Japan Animal Referral Medical Center that you need to be mindful of.

If you're unsure about the strength of Japan Animal Referral Medical Center's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.