Tohokushinsha Film Corporation's (TSE:2329) P/E Is Still On The Mark Following 27% Share Price Bounce

Tohokushinsha Film Corporation (TSE:2329) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 83%.

Since its price has surged higher, Tohokushinsha Film may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 21.4x, since almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Tohokushinsha Film has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Tohokushinsha Film

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Tohokushinsha Film will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Tohokushinsha Film would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. The latest three year period has also seen an excellent 392% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 9.8% 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 understandable that Tohokushinsha Film's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Tohokushinsha Film's P/E?

Shares in Tohokushinsha Film have built up some good momentum lately, which has really inflated its P/E. 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 Tohokushinsha Film maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Tohokushinsha Film (1 is a bit concerning!) that you need to be mindful of.

If you're unsure about the strength of Tohokushinsha Film'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.

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