It's A Story Of Risk Vs Reward With Oji Holdings Corporation (TSE:3861)

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider Oji Holdings Corporation (TSE:3861) as an attractive investment with its 10.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Oji Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Oji Holdings

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

Is There Any Growth For Oji Holdings?

There's an inherent assumption that a company should underperform the market for P/E ratios like Oji Holdings' to be considered reasonable.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. This isn't what shareholders were looking for as it means they've been left with a 31% decline in EPS over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 14% each year over the next three years. That's shaping up to be materially higher than the 9.4% per year growth forecast for the broader market.

In light of this, it's peculiar that Oji Holdings' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Oji Holdings' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Oji Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Oji Holdings is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

You might be able to find a better investment than Oji Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.