Investors Holding Back On Cosmo Energy Holdings Co., Ltd. (TSE:5021)

It's not a stretch to say that Cosmo Energy Holdings Co., Ltd.'s (TSE:5021) price-to-earnings (or "P/E") ratio of 13.3x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Cosmo Energy Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Cosmo Energy Holdings

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

Is There Some Growth For Cosmo Energy Holdings?

There's an inherent assumption that a company should be matching the market for P/E ratios like Cosmo Energy Holdings' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 59%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 19% per annum as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 11% each year growth forecast for the broader market.

With this information, we find it interesting that Cosmo Energy Holdings is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Cosmo Energy Holdings' P/E?

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.

Our examination of Cosmo Energy Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Cosmo Energy Holdings has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Cosmo Energy Holdings. 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.