Not Many Are Piling Into IMAGICA GROUP Inc. (TSE:6879) Stock Yet As It Plummets 26%

Unfortunately for some shareholders, the IMAGICA GROUP Inc. (TSE:6879) share price has dived 26% 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 38% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about IMAGICA GROUP's P/E ratio of 11.5x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

IMAGICA GROUP hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for IMAGICA GROUP

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Is There Some Growth For IMAGICA GROUP?

IMAGICA GROUP's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 62%. The last three years don't look nice either as the company has shrunk EPS by 70% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 25% per annum during the coming three years according to the two analysts following the company. With the market only predicted to deliver 9.6% each year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that IMAGICA GROUP is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On IMAGICA GROUP's P/E

IMAGICA GROUP's plummeting stock price has brought its P/E right back to the rest of the market. 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 IMAGICA GROUP currently trades on a 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 pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for IMAGICA GROUP that you need to be mindful of.

Of course, you might also be able to find a better stock than IMAGICA GROUP. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com