Earnings Working Against Enplas Corporation's (TSE:6961) Share Price Following 32% Dive

The Enplas Corporation (TSE:6961) share price has fared very poorly over the last month, falling by a substantial 32%. For any long-term shareholders, the last month ends a year to forget by locking in a 53% share price decline.

Although its price has dipped substantially, Enplas may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.1x, since almost half of all companies in Japan have P/E ratios greater than 13x and even P/E's higher than 19x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Enplas 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 Enplas

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How Is Enplas' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 112% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 6.7% over the next year. Meanwhile, the rest of the market is forecast to expand by 10%, which is noticeably more attractive.

In light of this, it's understandable that Enplas' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Enplas' recently weak share price has pulled its P/E below most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Enplas maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Enplas that you should be aware of.

If these risks are making you reconsider your opinion on Enplas, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.