The Price Is Right For Valtes Holdings Co.,Ltd. (TSE:4442) Even After Diving 30%

Valtes Holdings Co.,Ltd. (TSE:4442) shares have had a horrible month, losing 30% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 67% share price decline.

Even after such a large drop in price, Valtes HoldingsLtd's price-to-earnings (or "P/E") ratio of 15.8x might still make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 13x and even P/E's below 9x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Valtes HoldingsLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Valtes HoldingsLtd

Keen to find out how analysts think Valtes HoldingsLtd's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Valtes HoldingsLtd's Growth Trending?

Valtes HoldingsLtd's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 21%. Even so, admirably EPS has lifted 116% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 24% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 9.6% per year, which is noticeably less attractive.

With this information, we can see why Valtes HoldingsLtd is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Despite the recent share price weakness, Valtes HoldingsLtd's P/E remains higher than most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Valtes HoldingsLtd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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 Valtes HoldingsLtd (1 can't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Valtes HoldingsLtd, 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