SIOS Corporation's (TSE:3744) Shares Bounce 25% But Its Business Still Trails The Market

Explore SIOS's Fair Values from the Community and select yours

Despite an already strong run, SIOS Corporation (TSE:3744) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 8.3% isn't as attractive.

Although its price has surged higher, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider SIOS as an attractive investment with its 9.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for SIOS as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 SIOS

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SIOS' earnings, revenue and cash flow.

Is There Any Growth For SIOS?

The only time you'd be truly comfortable seeing a P/E as low as SIOS' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 147%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.9% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that SIOS' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

SIOS' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

As we suspected, our examination of SIOS revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for SIOS (of which 1 doesn't sit too well with us!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.