Lacklustre Performance Is Driving TSUKADA GLOBAL HOLDINGS Inc.'s (TSE:2418) Low P/E

TSUKADA GLOBAL HOLDINGS Inc.'s (TSE:2418) price-to-earnings (or "P/E") ratio of 3.5x might make it look like a strong 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 22x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

TSUKADA GLOBAL HOLDINGS certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for TSUKADA GLOBAL HOLDINGS

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TSUKADA GLOBAL HOLDINGS' earnings, revenue and cash flow.

Is There Any Growth For TSUKADA GLOBAL HOLDINGS?

The only time you'd be truly comfortable seeing a P/E as depressed as TSUKADA GLOBAL HOLDINGS' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 102% last year. However, the latest three year period hasn't been as great in aggregate 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.8% shows it's noticeably less attractive on an annualised basis.

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

The Final Word

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 TSUKADA GLOBAL HOLDINGS maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 3 warning signs we've spotted with TSUKADA GLOBAL HOLDINGS (including 1 which shouldn't be ignored).

Of course, you might also be able to find a better stock than TSUKADA GLOBAL 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.

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