It's Down 27% But Brangista Inc. (TSE:6176) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Brangista Inc. (TSE:6176) share price has dived 27% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

In spite of the heavy fall in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Brangista as an attractive investment with its 10.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Brangista could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.

See our latest analysis for Brangista

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

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Brangista would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 289% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 25% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader market.

In light of this, it's peculiar that Brangista'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 Final Word

The softening of Brangista's shares means its P/E is now sitting at a pretty low level. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Brangista currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Brangista has 2 warning signs we think you should be aware of.

You might be able to find a better investment than Brangista. 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.