Japan Animal Referral Medical Center Co., Ltd.'s (TSE:6039) P/E Is Still On The Mark Following 26% Share Price 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 annual gain comes to 157% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Japan Animal Referral Medical Center as a stock to potentially avoid with its 20.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's superior to most other companies of late, Japan Animal Referral Medical Center has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Japan Animal Referral Medical Center's Growth Trending?

Japan Animal Referral Medical Center's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. The latest three year period has also seen an excellent 76% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 13% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 9.2% per year, which is noticeably less attractive.

In light of this, it's understandable that Japan Animal Referral Medical Center's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Japan Animal Referral Medical Center's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Japan Animal Referral Medical Center maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Japan Animal Referral Medical Center (1 makes us a bit uncomfortable) you should be aware 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.