GMO TECH, Inc. (TSE:6026) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

GMO TECH, Inc. (TSE:6026) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that GMO TECH's price-to-earnings (or "P/E") ratio of 13.4x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Our free stock report includes 3 warning signs investors should be aware of before investing in GMO TECH. Read for free now.

GMO TECH has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for GMO TECH

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

Is There Some Growth For GMO TECH?

The only time you'd be comfortable seeing a P/E like GMO TECH's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 22%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 9.4% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that GMO TECH is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

GMO TECH's plummeting stock price has brought its P/E right back to the rest of the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of GMO TECH revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for GMO TECH that you should be aware of.

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