Toyo Sugar Refining Co., Ltd. (TSE:2107) Might Not Be As Mispriced As It Looks After Plunging 26%

Unfortunately for some shareholders, the Toyo Sugar Refining Co., Ltd. (TSE:2107) share price has dived 26% in the last thirty days, prolonging recent pain. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

In spite of the heavy fall in price, Toyo Sugar Refining may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.9x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been quite advantageous for Toyo Sugar Refining as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

See our latest analysis for Toyo Sugar Refining

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Toyo Sugar Refining will help you shine a light on its historical performance.

Is There Any Growth For Toyo Sugar Refining?

Toyo Sugar Refining's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 230% gain to the company's bottom line. The latest three year period has also seen an excellent 413% 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.

This is in contrast to the rest of the market, which is expected to grow by 9.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Toyo Sugar Refining's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Toyo Sugar Refining's P/E looks about as weak as its stock price lately. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Toyo Sugar Refining revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Toyo Sugar Refining.

Of course, you might also be able to find a better stock than Toyo Sugar Refining. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.