Lacklustre Performance Is Driving Kansai Paint Co., Ltd.'s (TSE:4613) Low P/E

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider Kansai Paint Co., Ltd. (TSE:4613) as an attractive investment with its 9.9x 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.

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Kansai Paint hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

See our latest analysis for Kansai Paint

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

Is There Any Growth For Kansai Paint?

The only time you'd be truly comfortable seeing a P/E as low as Kansai Paint's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 111% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 2.8% each year as estimated by the eight analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 8.9% per year, which is noticeably more attractive.

With this information, we can see why Kansai Paint is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

We've established that Kansai Paint maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Kansai Paint (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

You might be able to find a better investment than Kansai Paint. 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.