Matsui Securities Co., Ltd.'s (TSE:8628) Business Is Trailing The Market But Its Shares Aren't

Matsui Securities Co., Ltd.'s (TSE:8628) price-to-earnings (or "P/E") ratio of 24.4x might make it look like a strong sell right now compared to the market in Japan, where around half of the companies have P/E ratios below 14x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Matsui Securities' earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Matsui Securities

Keen to find out how analysts think Matsui Securities' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Matsui Securities' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Matsui Securities' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.1%. The last three years don't look nice either as the company has shrunk EPS by 1.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 0.4% each year over the next three years. With the market predicted to deliver 10% growth per annum, that's a disappointing outcome.

With this information, we find it concerning that Matsui Securities is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Matsui Securities' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Matsui Securities has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If these risks are making you reconsider your opinion on Matsui Securities, explore our interactive list of high quality stocks to get an idea of what else is out there.

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

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.