What Matsui Construction Co., Ltd.'s (TSE:1810) P/E Is Not Telling You

There wouldn't be many who think Matsui Construction Co., Ltd.'s (TSE:1810) price-to-earnings (or "P/E") ratio of 11.8x is worth a mention when the median P/E in Japan is similar at about 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Matsui Construction certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Matsui Construction

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Matsui Construction's earnings, revenue and cash flow.

Is There Some Growth For Matsui Construction?

In order to justify its P/E ratio, Matsui Construction would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 148% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 1.3% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 10% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Matsui Construction is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Bottom Line On Matsui Construction's 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 Matsui Construction currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Matsui Construction (1 is potentially serious!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Matsui Construction, 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.