Investors Give F&M Co.,Ltd. (TSE:4771) Shares A 25% Hiding

The F&M Co.,Ltd. (TSE:4771) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 26% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that F&MLtd's price-to-earnings (or "P/E") ratio of 14.6x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, F&MLtd's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for F&MLtd

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 F&MLtd's earnings, revenue and cash flow.

How Is F&MLtd's Growth Trending?

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

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 14%. Even so, admirably EPS has lifted 89% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.7% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that F&MLtd is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On F&MLtd's P/E

With its share price falling into a hole, the P/E for F&MLtd looks quite average now. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that F&MLtd currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

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

If these risks are making you reconsider your opinion on F&MLtd, 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.