The Price Is Right For YUMEMITSUKETAI Co.,Ltd. (TSE:2673) Even After Diving 25%
YUMEMITSUKETAI Co.,Ltd. (TSE:2673) shares have had a horrible month, losing 25% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 125% in the last twelve months.
Although its price has dipped substantially, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may still consider YUMEMITSUKETAILtd 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.
For instance, YUMEMITSUKETAILtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for YUMEMITSUKETAILtd
What Are Growth Metrics Telling Us About The High P/E?
YUMEMITSUKETAILtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.
Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 111% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
Comparing that to the market, which is only predicted to deliver 9.2% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
In light of this, it's understandable that YUMEMITSUKETAILtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Final Word
Despite the recent share price weakness, YUMEMITSUKETAILtd's P/E remains higher than most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that YUMEMITSUKETAILtd maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, 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. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
There are also other vital risk factors to consider and we've discovered 3 warning signs for YUMEMITSUKETAILtd (1 is concerning!) that you should be aware of before investing here.
If these risks are making you reconsider your opinion on YUMEMITSUKETAILtd, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.