Little Excitement Around Daiwa Securities Group Inc.'s (TSE:8601) Earnings

With a price-to-earnings (or "P/E") ratio of 8.8x Daiwa Securities Group Inc. (TSE:8601) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 13x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's superior to most other companies of late, Daiwa Securities Group has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Daiwa Securities Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Daiwa Securities Group.

Is There Any Growth For Daiwa Securities Group?

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

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. Pleasingly, EPS has also lifted 73% 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.

Turning to the outlook, the next three years should generate growth of 0.4% each year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 9.0% each year growth forecast for the broader market.

With this information, we can see why Daiwa Securities Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Daiwa Securities Group'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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Daiwa Securities Group (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of Daiwa Securities Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.