U-NEXT HOLDINGS Co.,Ltd. (TSE:9418) Investors Are Less Pessimistic Than Expected

U-NEXT HOLDINGS Co.,Ltd.'s (TSE:9418) price-to-earnings (or "P/E") ratio of 16.6x might make it look like a sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 9x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for U-NEXT HOLDINGSLtd as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for U-NEXT HOLDINGSLtd

If you'd like to see what analysts are forecasting going forward, you should check out our free report on U-NEXT HOLDINGSLtd.

How Is U-NEXT HOLDINGSLtd's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like U-NEXT HOLDINGSLtd's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 52% last year. The latest three year period has also seen an excellent 85% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 0.5% as estimated by the three analysts watching the company. With the market predicted to deliver 9.7% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that U-NEXT HOLDINGSLtd's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On U-NEXT HOLDINGSLtd's P/E

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.

Our examination of U-NEXT HOLDINGSLtd's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for U-NEXT HOLDINGSLtd with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than U-NEXT HOLDINGSLtd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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