The Market Lifts Meiko Electronics Co., Ltd. (TSE:6787) Shares 32% But It Can Do More

Despite an already strong run, Meiko Electronics Co., Ltd. (TSE:6787) shares have been powering on, with a gain of 32% in the last thirty days. The last month tops off a massive increase of 146% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Meiko Electronics' price-to-earnings (or "P/E") ratio of 14.5x 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.

Meiko Electronics certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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 Meiko Electronics

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

How Is Meiko Electronics' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Meiko Electronics' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 30% last year. The latest three year period has also seen an excellent 149% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.2% per year, which is noticeably less attractive.

In light of this, it's curious that Meiko Electronics' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Meiko Electronics' P/E?

Meiko Electronics' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Meiko Electronics currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Meiko Electronics you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.