CKD Corporation's (TSE:6407) Stock Retreats 26% But Earnings Haven't Escaped The Attention Of Investors

The CKD Corporation (TSE:6407) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term shareholders would now have taken a real hit with the stock declining 3.6% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that CKD's price-to-earnings (or "P/E") ratio of 13.1x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Recent times have been advantageous for CKD 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for CKD

Keen to find out how analysts think CKD's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Growth For CKD?

The only time you'd be comfortable seeing a P/E like CKD's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 7.4% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 10% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.1% each year, which is not materially different.

In light of this, it's understandable that CKD's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

CKD's plummeting stock price has brought its P/E right back to the rest of the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that CKD maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for CKD you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.