Nippon Pillar Packing Co., Ltd. (TSE:6490) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Nippon Pillar Packing Co., Ltd. (TSE:6490) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 63%.

In spite of the firm bounce in price, there still wouldn't be many who think Nippon Pillar Packing's price-to-earnings (or "P/E") ratio of 13.2x is worth a mention when the median P/E in Japan is similar at about 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times haven't been advantageous for Nippon Pillar Packing as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Nippon Pillar Packing

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nippon Pillar Packing.

Is There Some Growth For Nippon Pillar Packing?

In order to justify its P/E ratio, Nippon Pillar Packing would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 5.0% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 281% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 0.2% as estimated by the two analysts watching the company. With the market predicted to deliver 11% growth , the company is positioned for a weaker earnings result.

With this information, we find it interesting that Nippon Pillar Packing is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Nippon Pillar Packing's P/E?

Its shares have lifted substantially and now Nippon Pillar Packing's P/E is also back up to the market median. 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 Nippon Pillar Packing currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Nippon Pillar Packing that you need to take into consideration.

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.