Not Many Are Piling Into Ultrafabrics Holdings Co.,Ltd. (TSE:4235) Stock Yet As It Plummets 36%

Ultrafabrics Holdings Co.,Ltd. (TSE:4235) shareholders that were waiting for something to happen have been dealt a blow with a 36% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

Even after such a large drop in price, Ultrafabrics HoldingsLtd's price-to-earnings (or "P/E") ratio of 6.8x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 21x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Ultrafabrics HoldingsLtd's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Ultrafabrics HoldingsLtd

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

How Is Ultrafabrics HoldingsLtd's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.0%. Even so, admirably EPS has lifted 3,747% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% per year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 9.6% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Ultrafabrics HoldingsLtd's 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 Key Takeaway

Ultrafabrics HoldingsLtd's P/E has taken a tumble along with its share price. 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.

Our examination of Ultrafabrics HoldingsLtd's 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Ultrafabrics HoldingsLtd (2 are concerning!) that you should be aware of before investing here.

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