To the annoyance of some shareholders, MEDIROM Healthcare Technologies Inc. (NASDAQ:MRM) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 49% share price drop.
Although its price has dipped substantially, MEDIROM Healthcare Technologies' price-to-earnings (or "P/E") ratio of 19.9x might still make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
As an illustration, earnings have deteriorated at MEDIROM Healthcare Technologies over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies 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.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on MEDIROM Healthcare Technologies' earnings, revenue and cash flow.
Is There Enough Growth For MEDIROM Healthcare Technologies?
There's an inherent assumption that a company should outperform the market for P/E ratios like MEDIROM Healthcare Technologies' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's alarming that MEDIROM Healthcare Technologies' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Key Takeaway
MEDIROM Healthcare Technologies' P/E hasn't come down all the way after its stock plunged. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that MEDIROM Healthcare Technologies currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with MEDIROM Healthcare Technologies (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.
If you're unsure about the strength of MEDIROM Healthcare Technologies' 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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
这与预计在未来一年增长14%的市场形成对比,该增长率显著高于该公司最近中期年化增长率。根据这些信息,我们发现Aehr Test Systems的市盈率与市场相当相似。显然,该公司的许多投资者没有最近的看淡者想象的那么看淡,并且现在不愿放弃他们的股票。如果市盈率下降到与最近增长率更相符合的水平,他们可能正在为未来的失望做准备。