Little Excitement Around ORIX Corporation's (TSE:8591) Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider ORIX Corporation (TSE:8591) as an attractive investment with its 9.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

ORIX certainly has been doing a good job lately as it's been growing earnings more 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for ORIX

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

How Is ORIX's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 38%. The latest three year period has also seen an excellent 75% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 6.5% each year over the next three years. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

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

What We Can Learn From ORIX's P/E?

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.

As we suspected, our examination of ORIX's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for ORIX (1 is a bit concerning!) that you should be aware of before investing here.

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