Stock Analysis

JCR Pharmaceuticals Co., Ltd. (TSE:4552) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

Source: Shutterstock

Unfortunately for some shareholders, the JCR Pharmaceuticals Co., Ltd. (TSE:4552) share price has dived 28% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about JCR Pharmaceuticals' P/E ratio of 13.3x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, JCR Pharmaceuticals has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for JCR Pharmaceuticals

TSE:4552 Price to Earnings Ratio vs Industry May 22nd 2024
Keen to find out how analysts think JCR Pharmaceuticals' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like JCR Pharmaceuticals' is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 45%. However, this wasn't enough as the latest three year period has seen a very unpleasant 21% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 13% each year as estimated by the seven analysts watching the company. Meanwhile, the broader market is forecast to expand by 9.1% per annum, which paints a poor picture.

With this information, we find it concerning that JCR Pharmaceuticals is trading at a fairly similar P/E to 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 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 JCR Pharmaceuticals' P/E?

With its share price falling into a hole, the P/E for JCR Pharmaceuticals looks quite average now. 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 JCR Pharmaceuticals currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for JCR Pharmaceuticals that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Valuation is complex, but we're helping make it simple.

Find out whether JCR Pharmaceuticals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at)

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.