Market Participants Recognise Japan PropTech Co.,Ltd.'s (TSE:4054) Earnings Pushing Shares 28% Higher

Those holding Japan PropTech Co.,Ltd. (TSE:4054) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Following the firm bounce in price, Japan PropTechLtd's price-to-earnings (or "P/E") ratio of 20.3x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 12x and even P/E's below 9x are quite common. 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, Japan PropTechLtd 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.

View our latest analysis for Japan PropTechLtd

Want the full picture on analyst estimates for the company? Then our free report on Japan PropTechLtd will help you uncover what's on the horizon.

Is There Enough Growth For Japan PropTechLtd?

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

Retrospectively, the last year delivered an exceptional 164% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 46% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 9.8% each year, which is noticeably less attractive.

In light of this, it's understandable that Japan PropTechLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Japan PropTechLtd's P/E?

Shares in Japan PropTechLtd have built up some good momentum lately, which has really inflated its P/E. 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 Japan PropTechLtd 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. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Japan PropTechLtd that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.