Some Ebara Jitsugyo Co.,Ltd. (TSE:6328) Shareholders Look For Exit As Shares Take 25% Pounding

Ebara Jitsugyo Co.,Ltd. (TSE:6328) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 15%.

Even after such a large drop in price, it's still not a stretch to say that Ebara JitsugyoLtd's price-to-earnings (or "P/E") ratio of 11.6x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Ebara JitsugyoLtd has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Ebara JitsugyoLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ebara JitsugyoLtd.

What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Ebara JitsugyoLtd would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. However, this wasn't enough as the latest three year period has seen a very unpleasant 1.2% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.3% each year as estimated by the sole analyst watching the company. That's shaping up to be materially lower than the 9.6% each year growth forecast for the broader market.

With this information, we find it interesting that Ebara JitsugyoLtd is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

With its share price falling into a hole, the P/E for Ebara JitsugyoLtd looks quite average now. 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.

Our examination of Ebara JitsugyoLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Ebara JitsugyoLtd has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Ebara JitsugyoLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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