Getting In Cheap On Aisin Corporation (TSE:7259) Might Be Difficult

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider Aisin Corporation (TSE:7259) as a stock to potentially avoid with its 14.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 1 warning sign investors should be aware of before investing in Aisin. Read for free now.

Aisin could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Aisin

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

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

In order to justify its P/E ratio, Aisin would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 8.4% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 53% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 49% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 9.7% each year, which is noticeably less attractive.

In light of this, it's understandable that Aisin's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

We've established that Aisin maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Aisin that you should be aware of.

Of course, you might also be able to find a better stock than Aisin. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.