Not Many Are Piling Into Tokyo Rope Mfg. Co., Ltd. (TSE:5981) Stock Yet As It Plummets 28%

The Tokyo Rope Mfg. Co., Ltd. (TSE:5981) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.

Although its price has dipped substantially, Tokyo Rope Mfg may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.4x, 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.

While the market has experienced earnings growth lately, Tokyo Rope Mfg'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 Tokyo Rope Mfg

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tokyo Rope Mfg.

Is There Any Growth For Tokyo Rope Mfg?

The only time you'd be truly comfortable seeing a P/E as low as Tokyo Rope Mfg's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 45% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 410% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 9.6% per annum growth forecast for the broader market.

In light of this, it's peculiar that Tokyo Rope Mfg's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Tokyo Rope Mfg's P/E

Tokyo Rope Mfg's recently weak share price has pulled its P/E below most other companies. 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.

We've established that Tokyo Rope Mfg currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Tokyo Rope Mfg is showing 5 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

You might be able to find a better investment than Tokyo Rope Mfg. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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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