Investors Still Waiting For A Pull Back In NIKKON Holdings Co.,Ltd. (TSE:9072)

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider NIKKON Holdings Co.,Ltd. (TSE:9072) as a stock to avoid entirely with its 24.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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NIKKON HoldingsLtd could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for NIKKON HoldingsLtd

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How Is NIKKON HoldingsLtd's Growth Trending?

In order to justify its P/E ratio, NIKKON HoldingsLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.7% last year. EPS has also lifted 22% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 21% as estimated by the three analysts watching the company. With the market only predicted to deliver 9.3%, the company is positioned for a stronger earnings result.

With this information, we can see why NIKKON HoldingsLtd is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On NIKKON HoldingsLtd's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of NIKKON HoldingsLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for NIKKON HoldingsLtd that you should be aware of.

If you're unsure about the strength of NIKKON HoldingsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.