MITSUI-SOKO HOLDINGS Co., Ltd.'s (TSE:9302) Shares Climb 26% But Its Business Is Yet to Catch Up

Despite an already strong run, MITSUI-SOKO HOLDINGS Co., Ltd. (TSE:9302) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 126% in the last year.

After such a large jump in price, MITSUI-SOKO HOLDINGS' price-to-earnings (or "P/E") ratio of 23.4x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 13x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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

MITSUI-SOKO HOLDINGS could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for MITSUI-SOKO HOLDINGS

Keen to find out how analysts think MITSUI-SOKO HOLDINGS' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For MITSUI-SOKO HOLDINGS?

The only time you'd be truly comfortable seeing a P/E as steep as MITSUI-SOKO HOLDINGS' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. The last three years don't look nice either as the company has shrunk EPS by 21% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 4.5% per year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 9.8% each year growth forecast for the broader market.

In light of this, it's alarming that MITSUI-SOKO HOLDINGS' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

Shares in MITSUI-SOKO HOLDINGS have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of MITSUI-SOKO HOLDINGS' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for MITSUI-SOKO HOLDINGS with six simple checks on some of these key factors.

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

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.