Market Cool On Moriroku Holdings Company, Ltd.'s (TSE:4249) Earnings Pushing Shares 31% Lower

Moriroku Holdings Company, Ltd. (TSE:4249) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 6.6% in the last year.

Although its price has dipped substantially, Moriroku Holdings Company may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.3x, 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 low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Moriroku Holdings Company has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Moriroku Holdings Company

Although there are no analyst estimates available for Moriroku Holdings Company, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

If we review the last year of earnings growth, the company posted a terrific increase of 133%. The latest three year period has also seen an excellent 814% 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.

Comparing that to the market, which is only predicted to deliver 9.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Moriroku Holdings Company is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Moriroku Holdings Company's P/E?

Moriroku Holdings Company's recently weak share price has pulled its P/E below most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Moriroku Holdings Company revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Moriroku Holdings Company (1 doesn't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Moriroku Holdings Company. 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