Cluster Technology Co.,Ltd. (TSE:4240) Not Lagging Market On Growth Or Pricing

With a median price-to-earnings (or "P/E") ratio of close to 14x in Japan, you could be forgiven for feeling indifferent about Cluster Technology Co.,Ltd.'s (TSE:4240) P/E ratio of 13.5x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Cluster TechnologyLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong 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 Cluster TechnologyLtd

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cluster TechnologyLtd will help you shine a light on its historical performance.

Does Growth Match The P/E?

Cluster TechnologyLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 159% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 35% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's about the same on an annualised basis.

With this information, we can see why Cluster TechnologyLtd is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Cluster TechnologyLtd revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You always need to take note of risks, for example - Cluster TechnologyLtd has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.