OSAKA Titanium technologies Co.,Ltd. (TSE:5726) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The OSAKA Titanium technologies Co.,Ltd. (TSE:5726) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Although its price has dipped substantially, OSAKA Titanium technologiesLtd's price-to-earnings (or "P/E") ratio of 7.9x 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 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that's superior to most other companies of late, OSAKA Titanium technologiesLtd 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.

See our latest analysis for OSAKA Titanium technologiesLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on OSAKA Titanium technologiesLtd.

How Is OSAKA Titanium technologiesLtd's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 30%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 19% each year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10% per annum, which is noticeably less attractive.

With this information, we find it odd that OSAKA Titanium technologiesLtd is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

OSAKA Titanium technologiesLtd's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of OSAKA Titanium technologiesLtd'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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for OSAKA Titanium technologiesLtd (of which 1 makes us a bit uncomfortable!) you should know about.

Of course, you might also be able to find a better stock than OSAKA Titanium technologiesLtd. 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.