Internetworking and Broadband Consulting Co.,Ltd.'s (TSE:3920) P/E Is Still On The Mark Following 27% Share Price Bounce

Internetworking and Broadband Consulting Co.,Ltd. (TSE:3920) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 78% in the last year.

Following the firm bounce in price, Internetworking and Broadband ConsultingLtd may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.1x, since almost half of all companies in Japan have P/E ratios under 12x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's exceedingly strong of late, Internetworking and Broadband ConsultingLtd has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Internetworking and Broadband ConsultingLtd

Although there are no analyst estimates available for Internetworking and Broadband ConsultingLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Internetworking and Broadband ConsultingLtd's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 462% gain to the company's bottom line. Pleasingly, EPS has also lifted 52% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.7% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Internetworking and Broadband ConsultingLtd 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 Bottom Line On Internetworking and Broadband ConsultingLtd's P/E

The large bounce in Internetworking and Broadband ConsultingLtd's shares has lifted the company's P/E to a fairly high level. 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.

We've established that Internetworking and Broadband ConsultingLtd 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Internetworking and Broadband ConsultingLtd, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Internetworking and Broadband ConsultingLtd, 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.