Little Excitement Around Toyota Tsusho Corporation's (TSE:8015) Earnings As Shares Take 35% Pounding

The Toyota Tsusho Corporation (TSE:8015) share price has fared very poorly over the last month, falling by a substantial 35%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

In spite of the heavy fall in price, Toyota Tsusho may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.7x, 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.

There hasn't been much to differentiate Toyota Tsusho's and the market's earnings growth lately. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Toyota Tsusho

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

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. The latest three year period has also seen an excellent 88% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 6.9% per annum during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 9.6% per year growth forecast for the broader market.

In light of this, it's understandable that Toyota Tsusho's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Toyota Tsusho's P/E?

Toyota Tsusho's recently weak share price has pulled its P/E below most other companies. 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 Toyota Tsusho maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Toyota Tsusho has 3 warning signs we think you should be aware of.

You might be able to find a better investment than Toyota Tsusho. 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.

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