Suzuken Co., Ltd.'s (TSE:9987) Share Price Could Signal Some Risk

It's not a stretch to say that Suzuken Co., Ltd.'s (TSE:9987) price-to-earnings (or "P/E") ratio of 11.4x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 2 warning signs investors should be aware of before investing in Suzuken. Read for free now.

With earnings growth that's superior to most other companies of late, Suzuken 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 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 not quite in favour.

See our latest analysis for Suzuken

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

Is There Some Growth For Suzuken?

In order to justify its P/E ratio, Suzuken 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 32% last year. The strong recent performance means it was also able to grow EPS by 179% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 1.7% per year over the next three years. With the market predicted to deliver 9.6% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Suzuken is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Final Word

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 Suzuken's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Suzuken you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.