Tsukiji Uoichiba Company, Limited's (TSE:8039) Price Is Out Of Tune With Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 13x, you may consider Tsukiji Uoichiba Company, Limited (TSE:8039) as a stock to avoid entirely with its 26.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Tsukiji Uoichiba Company has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Tsukiji Uoichiba Company

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Tsukiji Uoichiba Company will help you shine a light on its historical performance.

Is There Enough Growth For Tsukiji Uoichiba Company?

Tsukiji Uoichiba Company's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. The latest three year period has also seen a 10% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 7.9% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Tsukiji Uoichiba Company's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Tsukiji Uoichiba Company's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Tsukiji Uoichiba Company currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You need to take note of risks, for example - Tsukiji Uoichiba Company has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

You might be able to find a better investment than Tsukiji Uoichiba Company. 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.