What You Can Learn From Persol Holdings Co.,Ltd.'s (TSE:2181) P/E

Persol Holdings Co.,Ltd.'s (TSE:2181) price-to-earnings (or "P/E") ratio of 16.8x might make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 10x are quite common. 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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Persol HoldingsLtd's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Persol HoldingsLtd

Want the full picture on analyst estimates for the company? Then our free report on Persol HoldingsLtd will help you uncover what's on the horizon.

How Is Persol HoldingsLtd's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Persol HoldingsLtd's 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 14% last year. The solid recent performance means it was also able to grow EPS by 14% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 12% per year over the next three years. That's shaping up to be materially higher than the 9.0% each year growth forecast for the broader market.

In light of this, it's understandable that Persol HoldingsLtd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Persol HoldingsLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Persol HoldingsLtd you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.