Not Many Are Piling Into TOWA Hi SYSTEM CO.,LTD. (TSE:4172) Just Yet

It's not a stretch to say that TOWA Hi SYSTEM CO.,LTD.'s (TSE:4172) price-to-earnings (or "P/E") ratio of 14.5x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 13x. 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.

TOWA Hi SYSTEMLTD hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for TOWA Hi SYSTEMLTD

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

How Is TOWA Hi SYSTEMLTD's Growth Trending?

TOWA Hi SYSTEMLTD's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 26% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 34% each year during the coming three years according to the only analyst following the company. Meanwhile, the rest of the market is forecast to only expand by 9.7% per annum, which is noticeably less attractive.

In light of this, it's curious that TOWA Hi SYSTEMLTD's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of TOWA Hi SYSTEMLTD's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for TOWA Hi SYSTEMLTD that you should be aware 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).

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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.