Not Many Are Piling Into Yamau Holdings Co., Ltd. (TSE:5284) Stock Yet As It Plummets 25%

Yamau Holdings Co., Ltd. (TSE:5284) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 15% share price drop.

In spite of the heavy fall in price, Yamau Holdings' price-to-earnings (or "P/E") ratio of 4.7x might still make it look like a strong 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Yamau Holdings as its earnings have been rising very briskly. 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.

See our latest analysis for Yamau Holdings

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

Does Growth Match The Low P/E?

Yamau Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 31%. Pleasingly, EPS has also lifted 40% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.8% shows it's about the same on an annualised basis.

With this information, we find it odd that Yamau Holdings is trading at a P/E lower than the market. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

What We Can Learn From Yamau Holdings' P/E?

Having almost fallen off a cliff, Yamau Holdings' share price has pulled its P/E way down as well. 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 Yamau Holdings revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 2 warning signs for Yamau Holdings that you should be aware of.

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

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