Investors Appear Satisfied With Japan Hospice Holdings Inc.'s (TSE:7061) Prospects As Shares Rocket 26%

Japan Hospice Holdings Inc. (TSE:7061) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.4% in the last twelve months.

After such a large jump in price, Japan Hospice Holdings may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 20.3x, since almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 10x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Japan Hospice Holdings 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Japan Hospice Holdings

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

How Is Japan Hospice Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Japan Hospice Holdings' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 6.3% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 60% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 47% per annum as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 9.5% per annum growth forecast for the broader market.

In light of this, it's understandable that Japan Hospice 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 Key Takeaway

The large bounce in Japan Hospice Holdings' shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Japan Hospice Holdings 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. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 5 warning signs we've spotted with Japan Hospice Holdings (including 2 which shouldn't be ignored).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.