Risks To Shareholder Returns Are Elevated At These Prices For Lovable Marketing Group,inc. (TSE:9254)

With a price-to-earnings (or "P/E") ratio of 31.2x Lovable Marketing Group,inc. (TSE:9254) may be sending very bearish signals at the moment, given that almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Our free stock report includes 2 warning signs investors should be aware of before investing in Lovable Marketing Groupinc. Read for free now.

For example, consider that Lovable Marketing Groupinc's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Lovable Marketing Groupinc

Although there are no analyst estimates available for Lovable Marketing Groupinc, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Lovable Marketing Groupinc's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.7%. The last three years don't look nice either as the company has shrunk EPS by 36% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 9.6% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Lovable Marketing Groupinc is trading at a P/E higher than the market. 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.

What We Can Learn From Lovable Marketing Groupinc's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Lovable Marketing Groupinc currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely 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.

Before you take the next step, you should know about the 2 warning signs for Lovable Marketing Groupinc that we have uncovered.

Of course, you might also be able to find a better stock than Lovable Marketing Groupinc. 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.