Insufficient Growth At Isuzu Motors Limited (TSE:7202) Hampers Share Price

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider Isuzu Motors Limited (TSE:7202) as an attractive investment with its 9.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Isuzu Motors could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

See our latest analysis for Isuzu Motors

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

How Is Isuzu Motors' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Isuzu Motors' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 41% in total over the last three years. 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.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 6.6% per annum over the next three years. That's shaping up to be materially lower than the 11% each year growth forecast for the broader market.

With this information, we can see why Isuzu Motors is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Isuzu Motors' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Isuzu Motors 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Isuzu Motors with six simple checks.

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.