Mitsui Matsushima Holdings Co., Ltd. (TSE:1518) Stock Catapults 32% Though Its Price And Business Still Lag The Market

Despite an already strong run, Mitsui Matsushima Holdings Co., Ltd. (TSE:1518) shares have been powering on, with a gain of 32% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.

In spite of the firm bounce in price, Mitsui Matsushima Holdings may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.3x, since almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 24x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Mitsui Matsushima Holdings has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. If you 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.

View our latest analysis for Mitsui Matsushima Holdings

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mitsui Matsushima Holdings will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/E as depressed as Mitsui Matsushima Holdings' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a decent 2.8% gain to the company's bottom line. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. 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 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Mitsui Matsushima Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Mitsui Matsushima Holdings' P/E?

Mitsui Matsushima Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of Mitsui Matsushima Holdings revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Mitsui Matsushima Holdings that you need to be mindful of.

If these risks are making you reconsider your opinion on Mitsui Matsushima Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.