Earnings Working Against MINATO HOLDINGS INC.'s (TSE:6862) Share Price Following 26% Dive

To the annoyance of some shareholders, MINATO HOLDINGS INC. (TSE:6862) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term, the stock has been solid despite a difficult 30 days, gaining 20% in the last year.

Even after such a large drop in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may still consider MINATO HOLDINGS as a highly attractive investment with its 3.9x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

MINATO HOLDINGS certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for MINATO HOLDINGS

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MINATO HOLDINGS.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like MINATO HOLDINGS' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 154% last year. The strong recent performance means it was also able to grow EPS by 225% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 32% during the coming year according to the sole analyst following the company. That's not great when the rest of the market is expected to grow by 9.6%.

In light of this, it's understandable that MINATO HOLDINGS' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On MINATO HOLDINGS' P/E

Having almost fallen off a cliff, MINATO HOLDINGS' share price has pulled its P/E way down as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that MINATO HOLDINGS maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for MINATO HOLDINGS (2 are potentially serious!) that you need to take into consideration.

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.