Market Might Still Lack Some Conviction On MINATO HOLDINGS INC. (TSE:6862) Even After 27% Share Price Boost

MINATO HOLDINGS INC. (TSE:6862) shares have continued their recent momentum with a 27% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

Although its price has surged higher, there still wouldn't be many who think MINATO HOLDINGS' price-to-earnings (or "P/E") ratio of 15.4x is worth a mention when the median P/E in Japan is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

MINATO HOLDINGS hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour 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.

See our latest analysis for MINATO HOLDINGS

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Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like MINATO HOLDINGS' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 72% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 28% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 39% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% each year, which is noticeably less attractive.

In light of this, it's curious that MINATO HOLDINGS' P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On MINATO HOLDINGS' P/E

MINATO HOLDINGS' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MINATO HOLDINGS 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.

Plus, you should also learn about these 6 warning signs we've spotted with MINATO HOLDINGS (including 3 which make us uncomfortable).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.