After Leaping 30% Cybozu, Inc. (TSE:4776) Shares Are Not Flying Under The Radar

Cybozu, Inc. (TSE:4776) shares have continued their recent momentum with a 30% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

Since its price has surged higher, Cybozu may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 45.3x, 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.

With earnings growth that's superior to most other companies of late, Cybozu has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Cybozu

Keen to find out how analysts think Cybozu's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 38% gain to the company's bottom line. Pleasingly, EPS has also lifted 191% 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.

Looking ahead now, EPS is anticipated to climb by 41% during the coming year according to the one analyst following the company. With the market only predicted to deliver 12%, the company is positioned for a stronger earnings result.

With this information, we can see why Cybozu 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.

What We Can Learn From Cybozu's P/E?

Shares in Cybozu have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Cybozu'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. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Cybozu is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Cybozu, 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.