MUGEN ESTATE Co.,Ltd. (TSE:3299) Stock Rockets 27% But Many Are Still Ignoring The Company

MUGEN ESTATE Co.,Ltd. (TSE:3299) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The annual gain comes to 157% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider MUGEN ESTATELtd as an attractive investment with its 9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's exceedingly strong of late, MUGEN ESTATELtd has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for MUGEN ESTATELtd

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

Is There Any Growth For MUGEN ESTATELtd?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 133% last year. The strong recent performance means it was also able to grow EPS by 521% 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.

Comparing that to the market, which is only predicted to deliver 11% 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 peculiar that MUGEN ESTATELtd'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.

The Bottom Line On MUGEN ESTATELtd's P/E

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

Our examination of MUGEN ESTATELtd revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about these 3 warning signs we've spotted with MUGEN ESTATELtd (including 2 which don't sit too well with us).

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.