YE DIGITAL Corporation (TSE:2354) Stock Rockets 28% But Many Are Still Ignoring The Company

YE DIGITAL Corporation (TSE:2354) shares have had a really impressive month, gaining 28% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.4% in the last twelve months.

Although its price has surged higher, YE DIGITAL's price-to-earnings (or "P/E") ratio of 10.9x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 13x and even P/E's above 21x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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

As an illustration, earnings have deteriorated at YE DIGITAL over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for YE DIGITAL

Although there are no analyst estimates available for YE DIGITAL, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For YE DIGITAL?

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

Retrospectively, the last year delivered a frustrating 5.7% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 155% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 9.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that YE DIGITAL's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On YE DIGITAL's P/E

The latest share price surge wasn't enough to lift YE DIGITAL's P/E close to the market median. 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 YE DIGITAL revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for YE DIGITAL that you need to take into consideration.

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.