Striders Corporation (TSE:9816) May Have Run Too Fast Too Soon With Recent 31% Price Plummet

Striders Corporation (TSE:9816) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Striders' P/E ratio of 14.3x, since the median price-to-earnings (or "P/E") ratio in Japan is also close to 13x. 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.

As an illustration, earnings have deteriorated at Striders over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Striders

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

How Is Striders' Growth Trending?

In order to justify its P/E ratio, Striders would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 37% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 9.8% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Striders is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Following Striders' share price tumble, its P/E is now hanging on to the median market P/E. 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 Striders currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Striders (at least 3 which are a bit unpleasant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Striders, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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