Subdued Growth No Barrier To Isetan Mitsukoshi Holdings Ltd. (TSE:3099) With Shares Advancing 28%

Isetan Mitsukoshi Holdings Ltd. (TSE:3099) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Isetan Mitsukoshi Holdings' price-to-earnings (or "P/E") ratio of 20.2x might make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. 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.

With earnings growth that's superior to most other companies of late, Isetan Mitsukoshi Holdings has been doing relatively well. 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.

Check out our latest analysis for Isetan Mitsukoshi Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Isetan Mitsukoshi Holdings.

Is There Enough Growth For Isetan Mitsukoshi Holdings?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 72% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. 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 0.2% per annum as estimated by the seven analysts watching the company. With the market predicted to deliver 9.1% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Isetan Mitsukoshi Holdings is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Isetan Mitsukoshi Holdings' P/E

Isetan Mitsukoshi Holdings' P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Isetan Mitsukoshi Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 2 warning signs for Isetan Mitsukoshi Holdings (1 is significant!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.