Aidma Holdings, Inc.'s (TSE:7373) 38% Cheaper Price Remains In Tune With Earnings

Aidma Holdings, Inc. (TSE:7373) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

In spite of the heavy fall in price, Aidma Holdings' price-to-earnings (or "P/E") ratio of 15.8x 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. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Aidma Holdings could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Aidma Holdings

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

How Is Aidma Holdings' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 83% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 80% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 9.8% growth forecast for the broader market.

With this information, we can see why Aidma Holdings is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Aidma Holdings' P/E?

Aidma Holdings' P/E hasn't come down all the way after its stock plunged. 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.

As we suspected, our examination of Aidma Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Aidma Holdings (1 is potentially serious!) that you should be aware of before investing here.

You might be able to find a better investment than Aidma 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.

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