Insufficient Growth At WDB Holdings Co., Ltd. (TSE:2475) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 9.4x WDB Holdings Co., Ltd. (TSE:2475) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 23x 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.

Recent times haven't been advantageous for WDB Holdings as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for WDB Holdings

Want the full picture on analyst estimates for the company? Then our free report on WDB Holdings will help you uncover what's on the horizon.

How Is WDB Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like WDB Holdings' to be considered reasonable.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. Fortunately, a few good years before that means that it was still able to grow EPS by 5.2% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 2.9% during the coming year according to the one analyst following the company. That's shaping up to be materially lower than the 9.7% growth forecast for the broader market.

With this information, we can see why WDB Holdings is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As we suspected, our examination of WDB Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with WDB Holdings.

You might be able to find a better investment than WDB Holdings. 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.