Rasa Corporation's (TSE:3023) Subdued P/E Might Signal An Opportunity

With a price-to-earnings (or "P/E") ratio of 8x Rasa Corporation (TSE:3023) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

As an illustration, earnings have deteriorated at Rasa over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Rasa

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Rasa will help you shine a light on its historical performance.

How Is Rasa's Growth Trending?

Rasa's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.3%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 38% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the market is similarly expected to grow by 9.8% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Rasa's P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Rasa's P/E?

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 Rasa currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Rasa, and understanding should be part of your investment process.

You might be able to find a better investment than Rasa. 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.

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