ANYCOLOR Inc. (TSE:5032) Shares Slammed 30% But Getting In Cheap Might Be Difficult Regardless

ANYCOLOR Inc. (TSE:5032) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 77%, which is great even in a bull market.

Even after such a large drop in price, ANYCOLOR may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 19.7x, since almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Recent times have been advantageous for ANYCOLOR as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for ANYCOLOR

Keen to find out how analysts think ANYCOLOR's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

ANYCOLOR's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 68%. The strong recent performance means it was also able to grow EPS by 140% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 9.1% each year growth forecast for the broader market.

With this information, we can see why ANYCOLOR is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

There's still some solid strength behind ANYCOLOR's P/E, if not its share price lately. 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.

As we suspected, our examination of ANYCOLOR's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for ANYCOLOR that you need to be mindful of.

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.