The Price Is Right For GDEP ADVANCE,Inc. (TSE:5885) Even After Diving 30%

GDEP ADVANCE,Inc. (TSE:5885) 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 34% in that time.

In spite of the heavy fall in price, given close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may still consider GDEP ADVANCEInc as a stock to avoid entirely with its 22.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

GDEP ADVANCEInc has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for GDEP ADVANCEInc

Although there are no analyst estimates available for GDEP ADVANCEInc, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is GDEP ADVANCEInc's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as GDEP ADVANCEInc's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.2% last year. This was backed up an excellent period prior to see EPS up by 66% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 9.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why GDEP ADVANCEInc is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On GDEP ADVANCEInc's P/E

A significant share price dive has done very little to deflate GDEP ADVANCEInc's very lofty P/E. 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 GDEP ADVANCEInc maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for GDEP ADVANCEInc (1 is potentially serious!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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