Earnings Tell The Story For Growth X Partners,Inc. (TSE:244A) As Its Stock Soars 26%

Growth X Partners,Inc. (TSE:244A) shares have continued their recent momentum with a 26% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, Growth X PartnersInc's price-to-earnings (or "P/E") ratio of 17.2x 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 10x 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Earnings have risen firmly for Growth X PartnersInc recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Growth X PartnersInc

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Growth X PartnersInc will help you shine a light on its historical performance.

Is There Enough Growth For Growth X PartnersInc?

The only time you'd be truly comfortable seeing a P/E as high as Growth X PartnersInc's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 98% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Growth X PartnersInc's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Growth X PartnersInc's P/E

The large bounce in Growth X PartnersInc's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Growth X PartnersInc maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Growth X PartnersInc is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.

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.