Earnings Tell The Story For Rorze Corporation (TSE:6323) As Its Stock Soars 31%

Rorze Corporation (TSE:6323) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 50% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Rorze's P/E ratio of 11.6x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 1 warning sign investors should be aware of before investing in Rorze. Read for free now.

With earnings growth that's superior to most other companies of late, Rorze has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Rorze

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

Does Growth Match The P/E?

Rorze's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. The strong recent performance means it was also able to grow EPS by 81% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 11% per annum during the coming three years according to the five analysts following the company. That's shaping up to be similar to the 9.8% per year growth forecast for the broader market.

With this information, we can see why Rorze is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Rorze's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Rorze's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

You always need to take note of risks, for example - Rorze has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.