UNIVERSAL ENGEISHA Co., Ltd.'s (TSE:6061) Shares Not Telling The Full Story

With a median price-to-earnings (or "P/E") ratio of close to 14x in Japan, you could be forgiven for feeling indifferent about UNIVERSAL ENGEISHA Co., Ltd.'s (TSE:6061) P/E ratio of 14.6x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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UNIVERSAL ENGEISHA certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for UNIVERSAL ENGEISHA

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on UNIVERSAL ENGEISHA will help you shine a light on its historical performance.

Is There Some Growth For UNIVERSAL ENGEISHA?

The only time you'd be comfortable seeing a P/E like UNIVERSAL ENGEISHA's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 41%. The latest three year period has also seen an excellent 49% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 8.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that UNIVERSAL ENGEISHA is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On UNIVERSAL ENGEISHA's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that UNIVERSAL ENGEISHA currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for UNIVERSAL ENGEISHA with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than UNIVERSAL ENGEISHA. 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.