Those who own shares of Beauty Kadan Holdings Co., Ltd. (TSE: 3041) will be relieved to see that the stock price has rebounded 36% over the past 30 days, repairing recent damage to investors’ portfolios. need to continue. . Still, the 30-day rally doesn’t change the fact that long-term shareholders see their stock as diminished by the 50% drop in the stock over the past 12 months.
With prices soaring, Beauty Kadan Holdings may be sending a very bearish signal with a price-to-earnings ratio (“P/E”) of 72.8x at the moment, as almost half of Japanese companies have a P/E ratio of 72.8x. be. It’s not uncommon for E-ratios to be less than 13x and even P/E ratios to be less than 9x. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the P/E ratio being so elevated.
For example, Beauty Kadan Holdings’ recent decline should be food for thought. One possibility is that the P/E ratio is high because investors think the company is strong enough to outperform the broader market in the near future. If you don’t hope so, you will end up paying a very high price for no particular reason.
Check out our latest analysis for Beauty Kadan Holdings.
TSE:3041 Price/Earnings Ratio vs. Industry October 30, 2024 Want a complete picture of the company’s earnings, revenue and cash flow? Our free report on Beauty Kadan Holdings sheds light on its historical performance. Helpful.
What do growth metrics tell us about a high P/E ratio?
For Beauty Kadan Holdings to justify its P/E ratio, it would need to deliver outstanding growth that significantly outpaces the market.
Looking back at last year’s earnings, we unfortunately saw the company’s profit drop by 68%. This means that profits are coming down over the long term, with EPS down a total of 66% over the past three years. Therefore, shareholders would have been disappointed with the medium-term profit growth rate.
When you weigh this medium-term revenue trajectory against the one-year forecast of 10% overall market expansion, you realize that’s an unpleasant outlook.
Based on this information, we are concerned that Beauty Kadan Holdings is trading at a higher P/E than the market. Apparently, many of the company’s investors are much more bullish than recent expectations and are unwilling to exit the stock at any price. Only the boldest would think these prices are sustainable, as a continuation of recent earnings trends will likely ultimately weigh on the stock.
What can we learn from Bikadan Holdings’ PER?
Due to the significant rise in stock price, Beauty Kadan Holdings’ P/E ratio has also increased significantly. While it’s not wise to use the price-to-earnings ratio alone to decide whether to sell a stock, it can be a practical guide to a company’s future prospects.
Our research on Beauty Kadan Holdings reveals that declining earnings over the medium term are not impacting the high P/E ratio as much as we expected, given the market’s expected growth. When I see earnings receding and falling short of market expectations, I suspect the stock is at risk of falling and the high P/E ratio will decline. Unless recent medium-term conditions improve significantly, it is very difficult to accept these prices as reasonable.
There are other important risk factors to consider, and we’ve discovered 4 warning signs for Beauty Kadan Holdings (2 that make us uncomfortable!) you should be aware of before investing here.
Of course, you may be able to find a better stock than Beauty Kadan Holdings. So we recommend taking a look at this free collection of other companies with reasonable P/E ratios and strong earnings growth.
Evaluation is complex, but we will simplify it here.
Discover whether Beauty Kadan Holdings is undervalued or overvalued with a detailed analysis featuring fair value estimates, potential risks, dividends, insider transactions, and financial condition.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
