Take Care Before Jumping Onto Anicom Holdings, Inc. (TSE:8715) Even Though It's 26% Cheaper

Anicom Holdings, Inc. (TSE:8715) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think Anicom Holdings' price-to-earnings (or "P/E") ratio of 14.5x is worth a mention when the median P/E in Japan is similar at about 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Anicom Holdings has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Anicom Holdings

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

How Is Anicom Holdings' Growth Trending?

The only time you'd be comfortable seeing a P/E like Anicom Holdings' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The latest three year period has also seen an excellent 78% overall rise in EPS, aided by its short-term performance. 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 14% per annum during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.6% per annum, which is noticeably less attractive.

With this information, we find it interesting that Anicom Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Following Anicom Holdings' share price tumble, its P/E is now hanging on to the median market P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Anicom Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Anicom Holdings is showing 1 warning sign in our investment analysis, you should know about.

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

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