Earnings Tell The Story For NTT Data Intramart Corporation (TSE:3850) As Its Stock Soars 38%

NTT Data Intramart Corporation (TSE:3850) shareholders have had their patience rewarded with a 38% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 78% in the last year.

After such a large jump in price, NTT Data Intramart may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 42.5x, since almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 9x 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 so lofty.

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With earnings growth that's superior to most other companies of late, NTT Data Intramart has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NTT Data Intramart

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NTT Data Intramart.

How Is NTT Data Intramart's Growth Trending?

In order to justify its P/E ratio, NTT Data Intramart would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 87% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 38% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 52% over the next year. That's shaping up to be materially higher than the 9.7% growth forecast for the broader market.

With this information, we can see why NTT Data Intramart 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 Final Word

The strong share price surge has got NTT Data Intramart's P/E rushing to great heights as well. 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 NTT Data Intramart 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.

Plus, you should also learn about this 1 warning sign we've spotted with NTT Data Intramart.

You might be able to find a better investment than NTT Data Intramart. 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.