Nasdaq
华尔街日报ZERO Co., Ltd. (TSE:9028) Stock Catapults 26% Though Its Price And Business Still Lag The Market
ZERO Co., Ltd. (TSE:9028) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 39%.
Even after such a large jump in price, ZERO may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9x, since almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
ZERO certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.
See our latest analysis for ZERO
Is There Any Growth For ZERO?
ZERO's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
If we review the last year of earnings growth, the company posted a terrific increase of 32%. The strong recent performance means it was also able to grow EPS by 139% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 5.4% each year over the next three years. That's shaping up to be materially lower than the 9.1% per annum growth forecast for the broader market.
With this information, we can see why ZERO is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On ZERO's P/E
ZERO's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 ZERO maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
It is also worth noting that we have found 1 warning sign for ZERO that you need to take into consideration.
Of course, you might also be able to find a better stock than ZERO. 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.