Keihan Holdings Co., Ltd. (TSE:9045) Investors Are Less Pessimistic Than Expected

It's not a stretch to say that Keihan Holdings Co., Ltd.'s (TSE:9045) price-to-earnings (or "P/E") ratio of 15.7x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Keihan Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

See our latest analysis for Keihan Holdings

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

How Is Keihan Holdings' Growth Trending?

In order to justify its P/E ratio, Keihan Holdings would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 15% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 6.9% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11%, which is noticeably more attractive.

With this information, we find it interesting that Keihan Holdings is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Keihan Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Keihan Holdings that we have uncovered.

Of course, you might also be able to find a better stock than Keihan Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.