Further Upside For Mino Ceramic Co., Ltd. (TSE:5356) Shares Could Introduce Price Risks After 28% Bounce

Mino Ceramic Co., Ltd. (TSE:5356) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 28% in the last year.

Although its price has surged higher, Mino Ceramic's price-to-earnings (or "P/E") ratio of 8.6x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 13x and even P/E's above 21x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Mino Ceramic has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Mino Ceramic

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

How Is Mino Ceramic's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Mino Ceramic's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 15%. The strong recent performance means it was also able to grow EPS by 79% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.0% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Mino Ceramic is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Mino Ceramic's P/E?

Despite Mino Ceramic's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Mino Ceramic revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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 1 warning sign for Mino Ceramic that you need to take into consideration.

If you're unsure about the strength of Mino Ceramic'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.