Moriya Transportation Engineering and Manufacturing Co.,Ltd. (TSE:6226) May Have Run Too Fast Too Soon With Recent 27% Price Plummet

Moriya Transportation Engineering and Manufacturing Co.,Ltd. (TSE:6226) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, there still wouldn't be many who think Moriya Transportation Engineering and ManufacturingLtd's price-to-earnings (or "P/E") ratio of 11.3x is worth a mention when the median P/E in Japan is similar at about 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Moriya Transportation Engineering and ManufacturingLtd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

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Is There Some Growth For Moriya Transportation Engineering and ManufacturingLtd?

Moriya Transportation Engineering and ManufacturingLtd's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 166% gain to the company's bottom line. The latest three year period has also seen an excellent 30% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 2.1% each year over the next three years. That's not great when the rest of the market is expected to grow by 9.6% per year.

With this information, we find it concerning that Moriya Transportation Engineering and ManufacturingLtd is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. 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 negative growth outlook.

The Final Word

Following Moriya Transportation Engineering and ManufacturingLtd's share price tumble, its P/E is now hanging on to the median market P/E. 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.

We've established that Moriya Transportation Engineering and ManufacturingLtd currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

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

If these risks are making you reconsider your opinion on Moriya Transportation Engineering and ManufacturingLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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