Nissan Motor Co., Ltd.'s (TSE:7201) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 4.3x Nissan Motor Co., Ltd. (TSE:7201) may be sending very bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Nissan Motor as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Nissan Motor

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nissan Motor.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Nissan Motor would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 29% 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.

Looking ahead now, EPS is anticipated to climb by 3.7% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 9.7% per year, which is noticeably more attractive.

In light of this, it's understandable that Nissan Motor's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 Nissan Motor maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Nissan Motor (1 is significant!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.