After Leaping 25% Osaka Soda Co., Ltd. (TSE:4046) Shares Are Not Flying Under The Radar

Osaka Soda Co., Ltd. (TSE:4046) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

After such a large jump in price, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Osaka Soda as a stock to potentially avoid with its 20.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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Osaka Soda certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Osaka Soda

Want the full picture on analyst estimates for the company? Then our free report on Osaka Soda will help you uncover what's on the horizon.

How Is Osaka Soda's Growth Trending?

Osaka Soda's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 8.2% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% per annum as estimated by the five analysts watching the company. With the market only predicted to deliver 9.2% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Osaka Soda'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.

What We Can Learn From Osaka Soda's P/E?

Osaka Soda's P/E is getting right up there since its shares have risen strongly. 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 Osaka Soda maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Osaka Soda you should be aware of.

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.