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華爾街日報Why Investors Shouldn't Be Surprised By Asian Star Co.'s (TSE:8946) 25% Share Price Plunge
The Asian Star Co. (TSE:8946) share price has fared very poorly over the last month, falling by a substantial 25%. The recent drop has obliterated the annual return, with the share price now down 8.3% over that longer period.
Even after such a large drop in price, Asian Star's price-to-earnings (or "P/E") ratio of 11.7x might still make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been quite advantageous for Asian Star as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for Asian Star
Is There Any Growth For Asian Star?
The only time you'd be truly comfortable seeing a P/E as low as Asian Star's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered an exceptional 346% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.1% shows it's noticeably less attractive on an annualised basis.
In light of this, it's understandable that Asian Star's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
What We Can Learn From Asian Star's P/E?
The softening of Asian Star's shares means its P/E is now sitting at a pretty low level. 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.
As we suspected, our examination of Asian Star revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 1 warning sign for Asian Star that you should be aware of.
You might be able to find a better investment than Asian Star. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.