Little Excitement Around Nippon Pallet Pool Co., Ltd.'s (TSE:4690) Earnings As Shares Take 35% Pounding

The Nippon Pallet Pool Co., Ltd. (TSE:4690) share price has fared very poorly over the last month, falling by a substantial 35%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Although its price has dipped substantially, Nippon Pallet Pool may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.6x, since 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For example, consider that Nippon Pallet Pool's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Nippon Pallet Pool

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 Nippon Pallet Pool's earnings, revenue and cash flow.

How Is Nippon Pallet Pool's Growth Trending?

Nippon Pallet Pool'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 60%. This means it has also seen a slide in earnings over the longer-term as EPS is down 22% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 9.8% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we are not surprised that Nippon Pallet Pool is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Nippon Pallet Pool's P/E

The softening of Nippon Pallet Pool's shares means its P/E is now sitting at a pretty low level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Nippon Pallet Pool revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 5 warning signs for Nippon Pallet Pool (1 doesn't sit too well with us!) that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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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