Kirin Holdings Company, Limited's (TSE:2503) Business Is Trailing The Market But Its Shares Aren't

There wouldn't be many who think Kirin Holdings Company, Limited's (TSE:2503) price-to-earnings (or "P/E") ratio of 12.9x is worth a mention when the median P/E in Japan is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, Kirin Holdings Company has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Kirin Holdings Company

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

Is There Some Growth For Kirin Holdings Company?

In order to justify its P/E ratio, Kirin Holdings Company would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. Pleasingly, EPS has also lifted 128% 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.

Looking ahead now, EPS is anticipated to climb by 3.5% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 9.6% per year growth forecast for the broader market.

With this information, we find it interesting that Kirin Holdings Company is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Kirin Holdings Company's P/E

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.

We've established that Kirin Holdings Company currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Kirin Holdings Company with six simple checks will allow you to discover any risks that could be an issue.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.