MINATO HOLDINGS INC. (TSE:6862) Looks Inexpensive After Falling 31% But Perhaps Not Attractive Enough

To the annoyance of some shareholders, MINATO HOLDINGS INC. (TSE:6862) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 5.3% over that longer period.

Although its price has dipped substantially, 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 2.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for MINATO HOLDINGS

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

How Is MINATO HOLDINGS' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as MINATO HOLDINGS' is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 154%. The strong recent performance means it was also able to grow EPS by 228% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 1.7% per year during the coming three years according to the lone analyst following the company. Meanwhile, the broader market is forecast to expand by 9.6% per annum, which paints a poor picture.

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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Shares in MINATO HOLDINGS have plummeted and its P/E is now low enough to touch the ground. 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 maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 5 warning signs for MINATO HOLDINGS (of which 3 shouldn't be ignored!) you should know about.

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