MEISEI INDUSTRIAL Co.,Ltd. (TSE:1976) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 7.2% isn't as impressive.
In spite of the firm bounce in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 13x, you may still consider MEISEI INDUSTRIALLtd as an attractive investment with its 9.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
MEISEI INDUSTRIALLtd 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 degrade substantially, 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 MEISEI INDUSTRIALLtd
What Are Growth Metrics Telling Us About The Low P/E?
MEISEI INDUSTRIALLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The strong recent performance means it was also able to grow EPS by 80% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
This is in contrast to the rest of the market, which is expected to grow by 9.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we find it odd that MEISEI INDUSTRIALLtd is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Final Word
MEISEI INDUSTRIALLtd's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that MEISEI INDUSTRIALLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
Plus, you should also learn about this 1 warning sign we've spotted with MEISEI INDUSTRIALLtd.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
Valuation is complex, but we're here to simplify it.
Discover if MEISEI INDUSTRIALLtd might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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