Vision Inc. (TSE:9416) Stocks Shoot Up 30% But Its P/E Still Looks Reasonable

Vision Inc. (TSE:9416) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Since its price has surged higher, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider Vision as a stock to potentially avoid with its 20.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Vision certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Vision

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vision.

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 24%. Pleasingly, EPS has also lifted 398% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 9.4% per annum growth forecast for the broader market.

In light of this, it's understandable that Vision'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 Final Word

The large bounce in Vision's shares has lifted the company's P/E to a fairly high level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Vision maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Vision (1 is significant!) that you need to be mindful of.

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

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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.