Pan Pacific International Holdings Corporation's (TSE:7532) Popularity With Investors Is Under Threat From Overpricing

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Pan Pacific International Holdings Corporation (TSE:7532) as a stock to avoid entirely with its 31.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Pan Pacific International Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

View our latest analysis for Pan Pacific International Holdings

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

How Is Pan Pacific International Holdings' Growth Trending?

In order to justify its P/E ratio, Pan Pacific International Holdings would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Pleasingly, EPS has also lifted 53% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 9.1% per year as estimated by the analysts watching the company. That's shaping up to be similar to the 10% per year growth forecast for the broader market.

In light of this, it's curious that Pan Pacific International Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

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.

Our examination of Pan Pacific International Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Pan Pacific International Holdings.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.