Nomura Holdings, Inc. (TSE:8604) Stock's 32% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Nomura Holdings, Inc. (TSE:8604) share price has fared very poorly over the last month, falling by a substantial 32%. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 19%.

Since its price has dipped substantially, Nomura Holdings may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.2x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Nomura Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

View our latest analysis for Nomura Holdings

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

Is There Any Growth For Nomura Holdings?

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

Retrospectively, the last year delivered an exceptional 85% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 269% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 8.2% per annum as estimated by the five analysts watching the company. That's shaping up to be similar to the 9.6% each year growth forecast for the broader market.

With this information, we find it odd that Nomura 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 Key Takeaway

Nomura Holdings' P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nomura Holdings currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You need to take note of risks, for example - Nomura Holdings has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com