Why We're Not Concerned Yet About COPRO-HOLDINGS. Co., Ltd.'s (TSE:7059) 28% Share Price Plunge

COPRO-HOLDINGS. Co., Ltd. (TSE:7059) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% 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 24%.

Even after such a large drop in price, COPRO-HOLDINGS' price-to-earnings (or "P/E") ratio of 16.8x might still make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 13x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been quite advantageous for COPRO-HOLDINGS as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for COPRO-HOLDINGS

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on COPRO-HOLDINGS will help you shine a light on its historical performance.

How Is COPRO-HOLDINGS' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as COPRO-HOLDINGS' is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 67%. Pleasingly, EPS has also lifted 45% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 9.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why COPRO-HOLDINGS is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

There's still some solid strength behind COPRO-HOLDINGS' P/E, if not its share price lately. 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 COPRO-HOLDINGS maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for COPRO-HOLDINGS that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.

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