Sysmex Corporation's (TSE:6869) P/E Is On The Mark

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Sysmex Corporation (TSE:6869) as a stock to avoid entirely with its 38x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Sysmex could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Sysmex

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sysmex.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Sysmex's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.8% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 43% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 19% each year over the next three years. With the market only predicted to deliver 10% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Sysmex's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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.

As we suspected, our examination of Sysmex's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Sysmex with six simple checks.

Of course, you might also be able to find a better stock than Sysmex. 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.