NISSHIN GROUP HOLDINGS Company, Limited (TSE:8881) Shares Fly 25% But Investors Aren't Buying For Growth

Despite an already strong run, NISSHIN GROUP HOLDINGS Company, Limited (TSE:8881) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 45% in the last year.

Even after such a large jump in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider NISSHIN GROUP HOLDINGS Company as an attractive investment with its 8.8x 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.

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With earnings growth that's exceedingly strong of late, NISSHIN GROUP HOLDINGS Company 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.

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Is There Any Growth For NISSHIN GROUP HOLDINGS Company?

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

Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. EPS has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.2% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why NISSHIN GROUP HOLDINGS Company is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On NISSHIN GROUP HOLDINGS Company's P/E

NISSHIN GROUP HOLDINGS Company's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that NISSHIN GROUP HOLDINGS Company maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for NISSHIN GROUP HOLDINGS Company (1 can't be ignored!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than NISSHIN GROUP HOLDINGS Company. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.