Oracle Corporation Japan's (TSE:4716) Shareholders Might Be Looking For Exit

Oracle Corporation Japan's (TSE:4716) price-to-earnings (or "P/E") ratio of 27.6x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

There hasn't been much to differentiate Oracle Corporation Japan's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Oracle Corporation Japan

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

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Oracle Corporation Japan's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.9%. The latest three year period has also seen a 11% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 4.8% per year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 10% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Oracle Corporation Japan is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Oracle Corporation Japan's 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.

Our examination of Oracle Corporation Japan's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Oracle Corporation Japan with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Oracle Corporation Japan'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.