Potential Upside For TOPPAN Holdings Inc. (TSE:7911) Not Without Risk

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider TOPPAN Holdings Inc. (TSE:7911) as an attractive investment with its 12.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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With earnings growth that's superior to most other companies of late, TOPPAN Holdings has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for TOPPAN Holdings

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

Is There Any Growth For TOPPAN Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like TOPPAN Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 28% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 18% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the three analysts watching the company. That's shaping up to be similar to the 9.6% per annum growth forecast for the broader market.

In light of this, it's peculiar that TOPPAN Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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 TOPPAN Holdings currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with TOPPAN Holdings, and understanding should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.