Kasumigaseki Capital Co.,Ltd.'s (TSE:3498) P/E Is Still On The Mark Following 34% Share Price Bounce

Despite an already strong run, Kasumigaseki Capital Co.,Ltd. (TSE:3498) shares have been powering on, with a gain of 34% in the last thirty days. The last 30 days were the cherry on top of the stock's 315% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Kasumigaseki CapitalLtd as a stock to avoid entirely with its 63.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, Kasumigaseki CapitalLtd has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Kasumigaseki CapitalLtd

Keen to find out how analysts think Kasumigaseki CapitalLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Kasumigaseki CapitalLtd?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 42%. The latest three year period has also seen an excellent 2,337% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 70% per year as estimated by the only analyst watching the company. With the market only predicted to deliver 11% each year, the company is positioned for a stronger earnings result.

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 Key Takeaway

Kasumigaseki CapitalLtd's P/E is flying high just like its stock has during the last month. 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.

It is also worth noting that we have found 4 warning signs for Kasumigaseki CapitalLtd (3 are significant!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.