Space Shower Skiyaki Holdings Inc.'s (TSE:4838) Popularity With Investors Under Threat As Stock Sinks 26%

Space Shower Skiyaki Holdings Inc. (TSE:4838) shareholders that were waiting for something to happen have been dealt a blow with a 26% 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 43% share price drop.

In spite of the heavy fall in price, given around half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may still consider Space Shower Skiyaki Holdings as a stock to potentially avoid with its 19x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

For instance, Space Shower Skiyaki Holdings' receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Space Shower Skiyaki Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Space Shower Skiyaki Holdings will help you shine a light on its historical performance.

How Is Space Shower Skiyaki Holdings' Growth Trending?

In order to justify its P/E ratio, Space Shower Skiyaki Holdings would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

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

In light of this, it's alarming that Space Shower Skiyaki Holdings' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Space Shower Skiyaki Holdings' P/E hasn't come down all the way after its stock plunged. 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 Space Shower Skiyaki Holdings revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Space Shower Skiyaki Holdings is showing 4 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on Space Shower Skiyaki Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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