Pro-Ship Incorporated (TSE:3763) Not Flying Under The Radar

With a price-to-earnings (or "P/E") ratio of 16.8x Pro-Ship Incorporated (TSE:3763) may be sending bearish signals at the moment, given that almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 10x are not unusual. 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.

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Pro-Ship certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Pro-Ship

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

Is There Enough Growth For Pro-Ship?

The only time you'd be truly comfortable seeing a P/E as high as Pro-Ship'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 terrific increase of 124%. Pleasingly, EPS has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 9.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Pro-Ship is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

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 Pro-Ship revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

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

You might be able to find a better investment than Pro-Ship. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.