Investors Interested In Japan Post Holdings Co., Ltd.'s (TSE:6178) Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider Japan Post Holdings Co., Ltd. (TSE:6178) as a stock to potentially avoid with its 16.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Japan Post Holdings 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 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.

Check out our latest analysis for Japan Post Holdings

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

Is There Enough Growth For Japan Post Holdings?

In order to justify its P/E ratio, Japan Post Holdings would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. As a result, earnings from three years ago have also fallen 23% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the seven analysts following the company. With the market only predicted to deliver 9.9% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Japan Post Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Japan Post Holdings maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Japan Post Holdings you should be aware of, and 1 of them is concerning.

If these risks are making you reconsider your opinion on Japan Post Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.