ENEOS Holdings, Inc. (TSE:5020) Looks Inexpensive But Perhaps Not Attractive Enough

With a price-to-earnings (or "P/E") ratio of 8.2x ENEOS Holdings, Inc. (TSE:5020) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 23x 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.

ENEOS Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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 ENEOS Holdings

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

Is There Any Growth For ENEOS Holdings?

In order to justify its P/E ratio, ENEOS Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 105%. Pleasingly, EPS has also lifted 175% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 5.0% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.5% each year, which is noticeably more attractive.

With this information, we can see why ENEOS Holdings 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.

The Key Takeaway

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.

As we suspected, our examination of ENEOS Holdings' 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.

Having said that, be aware ENEOS Holdings is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.