Kasumigaseki Capital Co.,Ltd.'s (TSE:3498) Stock Retreats 26% But Earnings Haven't Escaped The Attention Of Investors

To the annoyance of some shareholders, Kasumigaseki Capital Co.,Ltd. (TSE:3498) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 111% in the last twelve months.

In spite of the heavy fall in price, Kasumigaseki CapitalLtd may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 26x, since 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.

Kasumigaseki CapitalLtd certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

View our latest analysis for Kasumigaseki CapitalLtd

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How Is Kasumigaseki CapitalLtd's Growth Trending?

In order to justify its P/E ratio, Kasumigaseki CapitalLtd would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 82% last year. The latest three year period has also seen an excellent 2,619% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 56% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.7% per annum, which is noticeably less attractive.

In light of this, it's understandable that Kasumigaseki CapitalLtd's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Even after such a strong price drop, Kasumigaseki CapitalLtd's P/E still exceeds the rest of the market significantly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Kasumigaseki CapitalLtd's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for Kasumigaseki CapitalLtd (2 make us uncomfortable!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Kasumigaseki CapitalLtd. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com