Market Participants Recognise MIXI, Inc.'s (TSE:2121) Earnings Pushing Shares 27% Higher

Despite an already strong run, MIXI, Inc. (TSE:2121) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Since its price has surged higher, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider MIXI as a stock to avoid entirely with its 24.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, MIXI has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for MIXI

Keen to find out how analysts think MIXI's future stacks up against the industry? In that case, our free report is a great place to start.

How Is MIXI's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as MIXI's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 91% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 12% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 25% per year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.5% per year, which is noticeably less attractive.

With this information, we can see why MIXI is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

MIXI's P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that MIXI maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - MIXI has 1 warning sign we think you should be aware of.

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.