Investors Appear Satisfied With SENKO Group Holdings Co., Ltd.'s (TSE:9069) Prospects

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider SENKO Group Holdings Co., Ltd. (TSE:9069) as a stock to potentially avoid with its 16x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Recent times haven't been advantageous for SENKO Group Holdings as its earnings have been rising slower than most other companies. 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.

Check out our latest analysis for SENKO Group Holdings

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How Is SENKO Group Holdings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as SENKO Group Holdings' is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.2% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 4.3% overall drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 9.7% each year growth forecast for the broader market.

With this information, we can see why SENKO Group Holdings is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 SENKO Group Holdings 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. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - SENKO Group Holdings has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If you're unsure about the strength of SENKO Group Holdings' 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.