Panasonic Holdings Corporation (TSE:6752) Stock Rockets 26% But Many Are Still Ignoring The Company

Panasonic Holdings Corporation (TSE:6752) shares have continued their recent momentum with a 26% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, Panasonic Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.5x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Panasonic Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Panasonic Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 23%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 28% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 9.5% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 10% per annum, which is not materially different.

With this information, we find it odd that Panasonic Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Panasonic Holdings' P/E

Panasonic Holdings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Panasonic Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Panasonic Holdings that you should be aware of.

If you're unsure about the strength of Panasonic Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.