The Price Is Right For Osaka Organic Chemical Industry Ltd. (TSE:4187) Even After Diving 33%

Osaka Organic Chemical Industry Ltd. (TSE:4187) shareholders won't be pleased to see that the share price has had a very rough month, dropping 33% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 2.0% over that longer period.

Although its price has dipped substantially, there still wouldn't be many who think Osaka Organic Chemical Industry's price-to-earnings (or "P/E") ratio of 14.7x is worth a mention when the median P/E in Japan is similar at about 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

While the market has experienced earnings growth lately, Osaka Organic Chemical Industry's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Osaka Organic Chemical Industry

Keen to find out how analysts think Osaka Organic Chemical Industry's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

In order to justify its P/E ratio, Osaka Organic Chemical Industry would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.6%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 8.4% per annum over the next three years. That's shaping up to be similar to the 9.6% per year growth forecast for the broader market.

With this information, we can see why Osaka Organic Chemical Industry is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

With its share price falling into a hole, the P/E for Osaka Organic Chemical Industry looks quite average now. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Osaka Organic Chemical Industry maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

You always need to take note of risks, for example - Osaka Organic Chemical Industry has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Osaka Organic Chemical Industry. 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