TOPPAN Holdings Inc. (TSE:7911) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

TOPPAN Holdings Inc. (TSE:7911) shares have had a horrible month, losing 26% after a relatively good period beforehand. The last month has meant the stock is now only up 4.7% during the last year.

Even after such a large drop in price, there still wouldn't be many who think TOPPAN Holdings' price-to-earnings (or "P/E") ratio of 14.2x is worth a mention when the median P/E in Japan is similar at about 13x. 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.

With earnings growth that's superior to most other companies of late, TOPPAN Holdings has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for TOPPAN Holdings

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

Does Growth Match The P/E?

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

Retrospectively, the last year delivered an exceptional 25% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. 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 3.5% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 9.6% each year growth forecast for the broader market.

In light of this, it's curious that TOPPAN Holdings' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On TOPPAN Holdings' P/E

With its share price falling into a hole, the P/E for TOPPAN Holdings looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of TOPPAN Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 2 warning signs for TOPPAN Holdings that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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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