It's A Story Of Risk Vs Reward With MINEBEA MITSUMI Inc. (TSE:6479)

With a median price-to-earnings (or "P/E") ratio of close to 13x in Japan, you could be forgiven for feeling indifferent about MINEBEA MITSUMI Inc.'s (TSE:6479) P/E ratio of 14.9x. 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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There hasn't been much to differentiate MINEBEA MITSUMI's and the market's earnings growth lately. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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Is There Some Growth For MINEBEA MITSUMI?

MINEBEA MITSUMI's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 13% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the analysts watching the company. With the market only predicted to deliver 8.8% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that MINEBEA MITSUMI is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On MINEBEA MITSUMI's P/E

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.

Our examination of MINEBEA MITSUMI's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with MINEBEA MITSUMI.

If these risks are making you reconsider your opinion on MINEBEA MITSUMI, 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.