Positive Sentiment Still Eludes Tsurumi Manufacturing Co.,Ltd. (TSE:6351) Following 27% Share Price Slump

Tsurumi Manufacturing Co.,Ltd. (TSE:6351) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 21% in the last year.

Although its price has dipped substantially, Tsurumi ManufacturingLtd may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.4x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x 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 limited.

Tsurumi ManufacturingLtd certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Tsurumi ManufacturingLtd

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

How Is Tsurumi ManufacturingLtd's Growth Trending?

Tsurumi ManufacturingLtd'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.

Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. Pleasingly, EPS has also lifted 103% 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.

Comparing that to the market, which is only predicted to deliver 9.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Tsurumi ManufacturingLtd's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Tsurumi ManufacturingLtd's recently weak share price has pulled its P/E below most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Tsurumi ManufacturingLtd currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Tsurumi ManufacturingLtd that you should be aware of.

If these risks are making you reconsider your opinion on Tsurumi ManufacturingLtd, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com