The Market Doesn't Like What It Sees From SE Holdings and Incubations Co., Ltd.'s (TSE:9478) Earnings Yet

With a price-to-earnings (or "P/E") ratio of 9.1x SE Holdings and Incubations Co., Ltd. (TSE:9478) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 12x and even P/E's higher than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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For example, consider that SE Holdings and Incubations' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 out of favour.

Check out our latest analysis for SE Holdings and Incubations

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

How Is SE Holdings and Incubations' Growth Trending?

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

Retrospectively, the last year delivered a frustrating 45% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 34% overall. 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 10% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that SE Holdings and Incubations' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From SE Holdings and Incubations' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of SE Holdings and Incubations revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for SE Holdings and Incubations that you need to take into consideration.

Of course, you might also be able to find a better stock than SE Holdings and Incubations. 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.