The Market Doesn't Like What It Sees From Sumiseki Holdings,Inc.'s (TSE:1514) Earnings Yet As Shares Tumble 28%

Sumiseki Holdings,Inc. (TSE:1514) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 188% in the last twelve months.

In spite of the heavy fall in price, Sumiseki HoldingsInc's price-to-earnings (or "P/E") ratio of 6.5x might still make it look like a strong 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 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly 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.

View our latest analysis for Sumiseki HoldingsInc

Although there are no analyst estimates available for Sumiseki HoldingsInc, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Sumiseki HoldingsInc?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Sumiseki HoldingsInc's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 112%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.8% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Sumiseki HoldingsInc is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Sumiseki HoldingsInc's P/E looks about as weak as its stock price lately. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Sumiseki HoldingsInc revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Sumiseki HoldingsInc (of which 1 is potentially serious!) 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.

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