Mitsubishi Paper Mills Limited (TSE:3864) Stock Rockets 25% But Many Are Still Ignoring The Company

Mitsubishi Paper Mills Limited (TSE:3864) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 5.8% isn't as attractive.

Even after such a large jump in price, Mitsubishi Paper Mills may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.2x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Mitsubishi Paper Mills as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Mitsubishi Paper Mills

Although there are no analyst estimates available for Mitsubishi Paper Mills, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mitsubishi Paper Mills' Growth Trending?

Mitsubishi Paper Mills' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 70% last year. The strong recent performance means it was also able to grow EPS by 2,532% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Mitsubishi Paper Mills' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Mitsubishi Paper Mills' P/E

Despite Mitsubishi Paper Mills' shares building up a head of steam, its P/E still lags most other companies. 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 Mitsubishi Paper Mills currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 2 warning signs for Mitsubishi Paper Mills (1 shouldn't be ignored!) that you need to take into consideration.

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.