Slammed 31% Loadstar Capital K.K. (TSE:3482) Screens Well Here But There Might Be A Catch

Unfortunately for some shareholders, the Loadstar Capital K.K. (TSE:3482) share price has dived 31% in the last thirty days, prolonging recent pain. Longer-term, the stock has been solid despite a difficult 30 days, gaining 18% in the last year.

Even after such a large drop in price, Loadstar Capital K.K may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.4x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, Loadstar Capital K.K has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for Loadstar Capital K.K

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

Does Growth Match The Low P/E?

Loadstar Capital K.K's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 107% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 21% as estimated by the sole analyst watching the company. With the market only predicted to deliver 9.8%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Loadstar Capital K.K is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Loadstar Capital K.K's P/E?

Having almost fallen off a cliff, Loadstar Capital K.K's share price has pulled its P/E way down as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Loadstar Capital K.K currently trades on a much 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 significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Loadstar Capital K.K (2 can't be ignored!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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