Take Care Before Jumping Onto Last One Mile Co.,Ltd. (TSE:9252) Even Though It's 29% Cheaper

The Last One Mile Co.,Ltd. (TSE:9252) share price has fared very poorly over the last month, falling by a substantial 29%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

Even after such a large drop in price, Last One MileLtd's price-to-earnings (or "P/E") ratio of 8.3x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Last One MileLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Last One MileLtd

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

Is There Any Growth For Last One MileLtd?

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

If we review the last year of earnings growth, the company posted a terrific increase of 140%. Pleasingly, EPS has also lifted 326% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Last One MileLtd's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Last One MileLtd's P/E has taken a tumble along with its share price. 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.

We've established that Last One MileLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Last One MileLtd (1 is a bit concerning!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Last One MileLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.