Cautious Investors Not Rewarding Starts Corporation Inc.'s (TSE:8850) Performance Completely

Starts Corporation Inc.'s (TSE:8850) price-to-earnings (or "P/E") ratio of 11.5x might make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 15x and even P/E's above 23x are quite common. 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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Starts could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Starts

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

Is There Any Growth For Starts?

There's an inherent assumption that a company should underperform the market for P/E ratios like Starts' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 13%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 24% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 11% per year over the next three years. With the market predicted to deliver 9.6% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Starts' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Starts' 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.

Our examination of Starts' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Starts you should be aware of.

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.