Market Participants Recognise GMO internet group, Inc.'s (TSE:9449) Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider GMO internet group, Inc. (TSE:9449) as a stock to potentially avoid with its 21.2x 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 as high as it is.

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Recent earnings growth for GMO internet group has been in line with the market. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for GMO internet group

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

How Is GMO internet group's Growth Trending?

In order to justify its P/E ratio, GMO internet group would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 7.2% gain to the company's bottom line. Still, lamentably EPS has fallen 25% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 24% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 9.3% each year, which is noticeably less attractive.

In light of this, it's understandable that GMO internet group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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 GMO internet group'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.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for GMO internet group with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than GMO internet group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.