Positive Sentiment Still Eludes TOKYO BASE Co.,Ltd. (TSE:3415) Following 30% Share Price Slump

TOKYO BASE Co.,Ltd. (TSE:3415) shareholders that were waiting for something to happen have been dealt a blow with a 30% 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 28% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think TOKYO BASELtd's price-to-earnings (or "P/E") ratio of 12.4x is worth a mention when the median P/E in Japan is similar at about 12x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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

See our latest analysis for TOKYO BASELtd

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What Are Growth Metrics Telling Us About The P/E?

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

Retrospectively, the last year delivered an exceptional 144% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 13% per annum over the next three years. With the market only predicted to deliver 9.7% per year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that TOKYO BASELtd is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From TOKYO BASELtd's P/E?

Following TOKYO BASELtd's share price tumble, its P/E is now hanging on to the median market P/E. 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.

Our examination of TOKYO BASELtd's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for TOKYO BASELtd that we have uncovered.

If you're unsure about the strength of TOKYO BASELtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.