Oricon Enterprises Limited's (NSE:ORICONENT) Business Is Yet to Catch Up With Its Share Price

There wouldn't be many who think Oricon Enterprises Limited's (NSE:ORICONENT) price-to-earnings (or "P/E") ratio of 13.2x is worth a mention when the median P/E in India is similar at about 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Oricon Enterprises' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Oricon Enterprises

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Oricon Enterprises' earnings, revenue and cash flow.

How Is Oricon Enterprises' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. This means it has also seen a slide in earnings over the longer-term as EPS is down 42% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for a contraction of 6.8% shows the market is more attractive on an annualised basis regardless.

In light of this, it's somewhat peculiar that Oricon Enterprises' P/E sits in line with the majority of other companies. In general, when earnings shrink rapidly the P/E often shrinks too, which could set up shareholders for future disappointment. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

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.

Our examination of Oricon Enterprises revealed its sharp three-year contraction in earnings isn't impacting its P/E as much as we would have predicted, given the market is set to shrink less severely. When we see below average earnings, we suspect the share price is at risk of declining, sending the moderate P/E lower. In addition, we would be concerned whether the company can even maintain its medium-term level of performance under these tough market conditions. Unless the company's relative performance improves, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Oricon Enterprises, and understanding them should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

If you decide to trade Oricon Enterprises, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account.Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.