Investors Give Sumiseki Holdings,Inc. (TSE:1514) Shares A 31% Hiding

The Sumiseki Holdings,Inc. (TSE:1514) share price has fared very poorly over the last month, falling by a substantial 31%. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 293% in the last twelve months.

In spite of the heavy fall in price, Sumiseki HoldingsInc's price-to-earnings (or "P/E") ratio of 8.4x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 15x and even P/E's above 24x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for Sumiseki HoldingsInc as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Sumiseki HoldingsInc

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 Sumiseki HoldingsInc's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Sumiseki HoldingsInc would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 245% gain to the company's bottom line. Pleasingly, EPS has also lifted 4,996% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Sumiseki HoldingsInc's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Sumiseki HoldingsInc's recently weak share price has pulled its P/E below most other companies. 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.

We've established that Sumiseki HoldingsInc currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Sumiseki HoldingsInc is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Sumiseki HoldingsInc's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.