Macbee Planet, Inc. (TSE:7095) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

The Macbee Planet, Inc. (TSE:7095) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 46% share price drop.

In spite of the heavy fall in price, Macbee Planet's price-to-earnings (or "P/E") ratio of 17.3x might still make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With earnings growth that's superior to most other companies of late, Macbee Planet has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Macbee Planet

Want the full picture on analyst estimates for the company? Then our free report on Macbee Planet will help you uncover what's on the horizon.

How Is Macbee Planet's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Macbee Planet's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 427%. Pleasingly, EPS has also lifted 264% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 19% each year over the next three years. That's not great when the rest of the market is expected to grow by 9.7% each year.

With this information, we find it concerning that Macbee Planet is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Macbee Planet's P/E?

There's still some solid strength behind Macbee Planet's P/E, if not its share price lately. 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 Macbee Planet currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 1 warning sign for Macbee Planet that you should be aware of.

You might be able to find a better investment than Macbee Planet. 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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