JALCO Holdings Inc.'s (TSE:6625) 27% Jump Shows Its Popularity With Investors

Despite an already strong run, JALCO Holdings Inc. (TSE:6625) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, JALCO Holdings may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.4x, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

JALCO Holdings certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for JALCO Holdings

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on JALCO Holdings' earnings, revenue and cash flow.

Is There Enough Growth For JALCO Holdings?

The only time you'd be truly comfortable seeing a P/E as high as JALCO Holdings' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 77% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why JALCO Holdings is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

The large bounce in JALCO Holdings' shares has lifted the company's P/E to a fairly high level. 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.

We've established that JALCO Holdings maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, 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 - JALCO Holdings has 4 warning signs (and 2 which are significant) we think you should know about.

If these risks are making you reconsider your opinion on JALCO Holdings, 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.