Qol Holdings Co., Ltd.'s (TSE:3034) Shares Not Telling The Full Story

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider Qol Holdings Co., Ltd. (TSE:3034) as an attractive investment with its 11.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Qol 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.

See our latest analysis for Qol Holdings

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

Is There Any Growth For Qol Holdings?

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

Retrospectively, the last year delivered a frustrating 14% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 46% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 38% per year during the coming three years according to the only analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.

In light of this, it's peculiar that Qol Holdings' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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 Qol Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook 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 these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Qol Holdings you should know about.

Of course, you might also be able to find a better stock than Qol Holdings. 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.