Joban Kosan Co.,Ltd.'s (TSE:9675) price-to-earnings (or "P/E") ratio of 9.5x 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 12x and even P/E's above 19x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Recent times have been quite advantageous for Joban KosanLtd as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Joban KosanLtd
How Is Joban KosanLtd's Growth Trending?
In order to justify its P/E ratio, Joban KosanLtd would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered an exceptional 45% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
This is in contrast to the rest of the market, which is expected to grow by 9.9% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why Joban KosanLtd is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Joban KosanLtd's P/E
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.
We've established that Joban KosanLtd 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Plus, you should also learn about these 3 warning signs we've spotted with Joban KosanLtd (including 1 which is concerning).
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.
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About TSE:9675
Joban KosanLtd
Engages in the tourism, fuel trading, manufacturing, transportation, and agricultural businesses in Japan and internationally.
Low and slightly overvalued.
