TOP Financial Group Limited's (NASDAQ:TOP) Share Price Is Still Matching Investor Opinion Despite 63% Slump

The TOP Financial Group Limited (NASDAQ:TOP) share price has fared very poorly over the last month, falling by a substantial 63%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, TOP Financial Group may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 48x, since almost half of all companies in the United States have P/E ratios under 14x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For instance, TOP Financial Group's receding earnings in recent times would have to be some food for thought. 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for TOP Financial Group

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

Is There Enough Growth For TOP Financial Group?

There's an inherent assumption that a company should far outperform the market for P/E ratios like TOP Financial Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 31%. Even so, admirably EPS has lifted 288% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.3% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that TOP Financial Group's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On TOP Financial Group's P/E

A significant share price dive has done very little to deflate TOP Financial Group's very lofty P/E. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that TOP Financial Group maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for TOP Financial Group that you should be aware of.

You might be able to find a better investment than TOP Financial Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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