Ishihara Sangyo Kaisha,Ltd. (TSE:4028) Stock's 31% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the Ishihara Sangyo Kaisha,Ltd. (TSE:4028) share price has dived 31% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

Although its price has dipped substantially, Ishihara Sangyo KaishaLtd may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.5x, 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. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Ishihara Sangyo KaishaLtd has been doing relatively well. 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.

Check out our latest analysis for Ishihara Sangyo KaishaLtd

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

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

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's bottom line. Pleasingly, EPS has also lifted 148% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 8.8% each year as estimated by the two analysts watching the company. With the market predicted to deliver 9.6% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Ishihara Sangyo KaishaLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Ishihara Sangyo KaishaLtd's P/E

Ishihara Sangyo KaishaLtd's P/E looks about as weak as its stock price lately. 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.

We've established that Ishihara Sangyo KaishaLtd currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Ishihara Sangyo KaishaLtd (1 is a bit unpleasant) you should be aware of.

If you're unsure about the strength of Ishihara Sangyo KaishaLtd's 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.

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