Optimistic Investors Push Nittetsu Mining Co., Ltd. (TSE:1515) Shares Up 33% But Growth Is Lacking

Nittetsu Mining Co., Ltd. (TSE:1515) shareholders have had their patience rewarded with a 33% share price jump in the last month. The annual gain comes to 162% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Nittetsu Mining's price-to-earnings (or "P/E") ratio of 17.3x might make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 10x are quite common. 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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With earnings growth that's exceedingly strong of late, Nittetsu Mining has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Nittetsu Mining

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

Is There Enough Growth For Nittetsu Mining?

There's an inherent assumption that a company should outperform the market for P/E ratios like Nittetsu Mining's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. As a result, it also grew EPS by 9.5% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that Nittetsu Mining's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Nittetsu Mining's P/E?

Nittetsu Mining's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Nittetsu Mining revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Nittetsu Mining that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.