Hazama Ando Corporation's (TSE:1719) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 10.4x Hazama Ando Corporation (TSE:1719) may be sending 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 22x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Hazama Ando as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Hazama Ando

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

How Is Hazama Ando's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Hazama Ando's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 65%. Pleasingly, EPS has also lifted 74% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 6.4% per year during the coming three years according to the three analysts following the company. Meanwhile, the broader market is forecast to expand by 9.1% per year, which paints a poor picture.

With this information, we are not surprised that Hazama Ando is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Hazama Ando maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 1 warning sign for Hazama Ando that you need to take into consideration.

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

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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.