Mitsubishi Corporation (TSE:8058) Looks Inexpensive After Falling 28% But Perhaps Not Attractive Enough

The Mitsubishi Corporation (TSE:8058) share price has fared very poorly over the last month, falling by a substantial 28%. The last month has meant the stock is now only up 3.2% during the last year.

Although its price has dipped substantially, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Mitsubishi as an attractive investment with its 9.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's inferior to most other companies of late, Mitsubishi has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

See our latest analysis for Mitsubishi

Keen to find out how analysts think Mitsubishi's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

Mitsubishi'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.

If we review the last year of earnings growth, the company posted a worthy increase of 8.6%. Pleasingly, EPS has also lifted 241% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 1.3% each year over the next three years. That's shaping up to be materially lower than the 9.6% each year growth forecast for the broader market.

With this information, we can see why Mitsubishi is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Mitsubishi's P/E?

The softening of Mitsubishi's shares means its P/E is now sitting at a pretty low level. 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.

As we suspected, our examination of Mitsubishi's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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 should always think about risks. Case in point, we've spotted 3 warning signs for Mitsubishi you should be aware of, and 1 of them doesn't sit too well with us.

If you're unsure about the strength of Mitsubishi's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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