Investors Appear Satisfied With Airport Facilities Co., Ltd.'s (TSE:8864) Prospects As Shares Rocket 29%

Airport Facilities Co., Ltd. (TSE:8864) shareholders have had their patience rewarded with a 29% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

Following the firm bounce in price, Airport Facilities may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 20x, since almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Airport Facilities has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Airport Facilities

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

How Is Airport Facilities' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Airport Facilities' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 67% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 9.8% per year growth forecast for the broader market.

With this information, we can see why Airport Facilities is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has got Airport Facilities' P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Airport Facilities' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Having said that, be aware Airport Facilities is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Airport Facilities, 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.