Hokuriku Electric Industry Co.,Ltd. (TSE:6989) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Hokuriku Electric Industry Co.,Ltd. (TSE:6989) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Hokuriku Electric IndustryLtd as a highly attractive investment with its 6.1x 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 so limited.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Hokuriku Electric IndustryLtd 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 degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Hokuriku Electric IndustryLtd

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 Hokuriku Electric IndustryLtd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Hokuriku Electric IndustryLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 359% gain to the company's bottom line. EPS has also lifted 17% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 9.7% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Hokuriku Electric IndustryLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Hokuriku Electric IndustryLtd's P/E

Hokuriku Electric IndustryLtd's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Hokuriku Electric IndustryLtd revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, you might also be able to find a better stock than Hokuriku Electric IndustryLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.