Investors Appear Satisfied With Startia Holdings,Inc.'s (TSE:3393) Prospects As Shares Rocket 47%

Startia Holdings,Inc. (TSE:3393) shareholders would be excited to see that the share price has had a great month, posting a 47% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 66%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Startia HoldingsInc's P/E ratio of 14.8x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Startia HoldingsInc hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Is There Some Growth For Startia HoldingsInc?

There's an inherent assumption that a company should be matching the market for P/E ratios like Startia HoldingsInc's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 10% as estimated by the only analyst watching the company. That's shaping up to be similar to the 9.7% growth forecast for the broader market.

With this information, we can see why Startia HoldingsInc is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Startia HoldingsInc'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 Startia HoldingsInc's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 2 warning signs for Startia HoldingsInc (1 is significant!) that we have uncovered.

If these risks are making you reconsider your opinion on Startia HoldingsInc, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.