Further Upside For Landix Inc. (TSE:2981) Shares Could Introduce Price Risks After 27% Bounce

Landix Inc. (TSE:2981) shareholders have had their patience rewarded with a 27% share price jump in the last month. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Landix as an attractive investment with its 8.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Recent times have been quite advantageous for Landix as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Landix

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

Is There Any Growth For Landix?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 237% last year. The strong recent performance means it was also able to grow EPS by 117% 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 9.9% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Landix's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Landix's P/E?

Landix's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that Landix currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Landix is showing 2 warning signs in our investment analysis, you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.