Septeni Holdings Co., Ltd.'s (TSE:4293) 30% Jump Shows Its Popularity With Investors

Septeni Holdings Co., Ltd. (TSE:4293) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Since its price has surged higher, Septeni Holdings' price-to-earnings (or "P/E") ratio of 34.9x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 13x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Septeni Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Septeni Holdings

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

How Is Septeni Holdings' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Septeni Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 47% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 37% each year during the coming three years according to the six analysts following the company. With the market only predicted to deliver 9.4% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Septeni Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Septeni Holdings' P/E

Shares in Septeni Holdings have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Septeni Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

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

Of course, you might also be able to find a better stock than Septeni Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.