JVCKENWOOD Corporation's (TSE:6632) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Those holding JVCKENWOOD Corporation (TSE:6632) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 43%.

Even after such a large jump in price, JVCKENWOOD's price-to-earnings (or "P/E") ratio of 8.6x 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 13x and even P/E's above 21x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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JVCKENWOOD certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

See our latest analysis for JVCKENWOOD

Keen to find out how analysts think JVCKENWOOD's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For JVCKENWOOD?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 60% last year. Pleasingly, EPS has also lifted 282% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 0.008% per annum during the coming three years according to the dual analysts following the company. That's shaping up to be materially lower than the 9.8% per year growth forecast for the broader market.

In light of this, it's understandable that JVCKENWOOD's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift JVCKENWOOD's P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of JVCKENWOOD's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - JVCKENWOOD has 1 warning sign we think 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.