Risks To Shareholder Returns Are Elevated At These Prices For Toho Holdings Co., Ltd. (TSE:8129)

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider Toho Holdings Co., Ltd. (TSE:8129) as a stock to potentially avoid with its 16.7x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We check all companies for important risks. See what we found for Toho Holdings in our free report.

Toho Holdings could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Toho Holdings

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

Does Growth Match The High P/E?

Toho Holdings' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 2.6%. The latest three year period has also seen an excellent 148% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 0.2% each year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 9.7% each year growth forecast for the broader market.

With this information, we find it concerning that Toho Holdings is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Toho Holdings' P/E

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 Toho Holdings' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

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 Toho Holdings with six simple checks.

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