Mitsui High-tec, Inc.'s (TSE:6966) P/E Is Still On The Mark Following 35% Share Price Bounce

The Mitsui High-tec, Inc. (TSE:6966) share price has done very well over the last month, posting an excellent gain of 35%. The last 30 days bring the annual gain to a very sharp 35%.

After such a large jump in price, Mitsui High-tec's price-to-earnings (or "P/E") ratio of 28.4x might make it look like a strong 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 so lofty.

While the market has experienced earnings growth lately, Mitsui High-tec's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mitsui High-tec

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How Is Mitsui High-tec's Growth Trending?

Mitsui High-tec's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 42% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 957% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 27% over the next year. With the market only predicted to deliver 11%, the company is positioned for a stronger earnings result.

With this information, we can see why Mitsui High-tec is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Mitsui High-tec have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mitsui High-tec maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Mitsui High-tec that you should be aware of.

Of course, you might also be able to find a better stock than Mitsui High-tec. 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.