A&D HOLON Holdings Company, Limited (TSE:7745) Might Not Be As Mispriced As It Looks After Plunging 29%

The A&D HOLON Holdings Company, Limited (TSE:7745) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

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 13x, you may still consider A&D HOLON Holdings Company as an attractive investment with its 6.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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A&D HOLON Holdings Company could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for A&D HOLON Holdings Company

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How Is A&D HOLON Holdings Company's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like A&D HOLON Holdings Company's to be considered reasonable.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 30% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 22% as estimated by the four analysts watching the company. With the market only predicted to deliver 10%, the company is positioned for a stronger earnings result.

With this information, we find it odd that A&D HOLON Holdings Company is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On A&D HOLON Holdings Company's P/E

The softening of A&D HOLON Holdings Company's shares means its P/E is now sitting at a pretty low level. 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.

Our examination of A&D HOLON Holdings Company's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for A&D HOLON Holdings Company you should know about.

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.