The Market Lifts ARGO GRAPHICS Inc. (TSE:7595) Shares 25% But It Can Do More

ARGO GRAPHICS Inc. (TSE:7595) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, it's still not a stretch to say that ARGO GRAPHICS' price-to-earnings (or "P/E") ratio of 16.1x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

ARGO GRAPHICS has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for ARGO GRAPHICS

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on ARGO GRAPHICS' earnings, revenue and cash flow.

Is There Some Growth For ARGO GRAPHICS?

The only time you'd be comfortable seeing a P/E like ARGO GRAPHICS' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. The strong recent performance means it was also able to grow EPS by 65% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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 find it interesting that ARGO GRAPHICS is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

ARGO GRAPHICS appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that ARGO GRAPHICS currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for ARGO GRAPHICS that you should be aware of.

If you're unsure about the strength of ARGO GRAPHICS' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com