Market Cool On Panasonic Holdings Corporation's (TSE:6752) Earnings

Panasonic Holdings Corporation's (TSE:6752) price-to-earnings (or "P/E") ratio of 10.2x might make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 15x and even P/E's above 23x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Panasonic Holdings as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

Check out our latest analysis for Panasonic Holdings

Want the full picture on analyst estimates for the company? Then our free report on Panasonic Holdings will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. Pleasingly, EPS has also lifted 61% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.6% each year, which is noticeably less attractive.

In light of this, it's peculiar that Panasonic Holdings' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Panasonic Holdings' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Panasonic Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Panasonic Holdings is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.