Kasumigaseki Capital Co.,Ltd. (TSE:3498) Stocks Shoot Up 25% But Its P/E Still Looks Reasonable

Despite an already strong run, Kasumigaseki Capital Co.,Ltd. (TSE:3498) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 254% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Kasumigaseki CapitalLtd may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 66.9x, 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Kasumigaseki CapitalLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Kasumigaseki CapitalLtd

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How Is Kasumigaseki CapitalLtd's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 75% per annum as estimated by the one analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 10.0% per year, which is noticeably less attractive.

With this information, we can see why Kasumigaseki CapitalLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Kasumigaseki CapitalLtd 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.

We've established that Kasumigaseki CapitalLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Kasumigaseki CapitalLtd has 3 warning signs (and 2 which are concerning) we think you should know about.

If these risks are making you reconsider your opinion on Kasumigaseki CapitalLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.