Take Care Before Jumping Onto i Cubed Systems, Inc. (TSE:4495) Even Though It's 30% Cheaper

i Cubed Systems, Inc. (TSE:4495) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about i Cubed Systems' P/E ratio of 11.8x, 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.

With earnings growth that's inferior to most other companies of late, i Cubed Systems has been relatively sluggish. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Is There Some Growth For i Cubed Systems?

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

Retrospectively, the last year delivered a decent 8.7% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 9.5% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 38% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 9.8% growth forecast for the broader market.

With this information, we find it interesting that i Cubed Systems 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.

The Bottom Line On i Cubed Systems' P/E

With its share price falling into a hole, the P/E for i Cubed Systems looks quite average now. 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.

We've established that i Cubed Systems currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - i Cubed Systems has 3 warning signs we think you should be aware of.

If you're unsure about the strength of i Cubed Systems' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com