Itochu Enex Co.,Ltd. (TSE:8133) Might Not Be As Mispriced As It Looks

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider Itochu Enex Co.,Ltd. (TSE:8133) as an attractive investment with its 11.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Itochu EnexLtd has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable 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.

Check out our latest analysis for Itochu EnexLtd

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Itochu EnexLtd's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Itochu EnexLtd's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. The latest three year period has also seen an excellent 32% 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.

It's interesting to note that the rest of the market is similarly expected to grow by 11% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it odd that Itochu EnexLtd is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Itochu EnexLtd's P/E

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.

We've established that Itochu EnexLtd currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Itochu EnexLtd that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.