The Price Is Right For TerraSky Co.,Ltd. (TSE:3915) Even After Diving 30%

Unfortunately for some shareholders, the TerraSky Co.,Ltd. (TSE:3915) share price has dived 30% in the last thirty days, prolonging recent pain. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 12%.

Even after such a large drop in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may still consider TerraSkyLtd as a stock to avoid entirely with its 27.2x P/E ratio. 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.

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

Recent times have been advantageous for TerraSkyLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for TerraSkyLtd

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

Is There Enough Growth For TerraSkyLtd?

There's an inherent assumption that a company should far outperform the market for P/E ratios like TerraSkyLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 225% gain to the company's bottom line. The latest three year period has also seen an excellent 103% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 30% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader market.

With this information, we can see why TerraSkyLtd 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 Bottom Line On TerraSkyLtd's P/E

Even after such a strong price drop, TerraSkyLtd's P/E still exceeds the rest of the market significantly. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of TerraSkyLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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 TerraSkyLtd 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.

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.