Kyogoku unyu shoji Co., Ltd.'s (TSE:9073) Popularity With Investors Under Threat As Stock Sinks 28%

The Kyogoku unyu shoji Co., Ltd. (TSE:9073) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. The last month has meant the stock is now only up 9.3% during the last year.

Although its price has dipped substantially, Kyogoku unyu shoji may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33.3x, since almost half of all companies in Japan have P/E ratios under 13x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

It looks like earnings growth has deserted Kyogoku unyu shoji recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Kyogoku unyu shoji

Although there are no analyst estimates available for Kyogoku unyu shoji, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kyogoku unyu shoji's Growth Trending?

In order to justify its P/E ratio, Kyogoku unyu shoji would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. This isn't what shareholders were looking for as it means they've been left with a 60% decline in EPS over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 9.8% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Kyogoku unyu shoji is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Kyogoku unyu shoji's P/E?

Kyogoku unyu shoji's shares may have retreated, but its P/E is still flying high. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Kyogoku unyu shoji revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 4 warning signs for Kyogoku unyu shoji (2 are a bit concerning!) that you should be aware of.

If you're unsure about the strength of Kyogoku unyu shoji's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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