Subdued Growth No Barrier To Kyogoku unyu shoji Co., Ltd. (TSE:9073) With Shares Advancing 39%

The Kyogoku unyu shoji Co., Ltd. (TSE:9073) share price has done very well over the last month, posting an excellent gain of 39%. The last 30 days bring the annual gain to a very sharp 54%.

Since its price has surged higher, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Kyogoku unyu shoji as a stock to avoid entirely with its 36.6x 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 lofty.

Kyogoku unyu shoji has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Kyogoku unyu shoji

Although there are no analyst estimates available for Kyogoku unyu shoji, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kyogoku unyu shoji's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Kyogoku unyu shoji's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 21% last year. Still, incredibly EPS has fallen 51% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 9.7% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Kyogoku unyu shoji is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

Kyogoku unyu shoji's P/E is flying high just like its stock has during the last month. 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 Kyogoku unyu shoji currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 4 warning signs for Kyogoku unyu shoji (1 is significant!) that you should be aware of.

If you're unsure about the strength of Kyogoku unyu shoji'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.