SHO-BOND Holdings Co.,Ltd.'s (TSE:1414) Shareholders Might Be Looking For Exit

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider SHO-BOND Holdings Co.,Ltd. (TSE:1414) as a stock to avoid entirely with its 21.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

SHO-BOND HoldingsLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for SHO-BOND HoldingsLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SHO-BOND HoldingsLtd.

Is There Enough Growth For SHO-BOND HoldingsLtd?

The only time you'd be truly comfortable seeing a P/E as steep as SHO-BOND HoldingsLtd's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The latest three year period has also seen an excellent 33% 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.

Looking ahead now, EPS is anticipated to climb by 0.3% during the coming year according to the four analysts following the company. Meanwhile, the rest of the market is forecast to expand by 9.8%, which is noticeably more attractive.

In light of this, it's alarming that SHO-BOND HoldingsLtd's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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 SHO-BOND HoldingsLtd currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for SHO-BOND HoldingsLtd you should know about.

You might be able to find a better investment than SHO-BOND HoldingsLtd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.