Market Cool On Taiheiyo Cement Corporation's (TSE:5233) Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider Taiheiyo Cement Corporation (TSE:5233) as an attractive investment with its 8.8x 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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While the market has experienced earnings growth lately, Taiheiyo Cement's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Taiheiyo Cement

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

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 7.4%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 140% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 9.5% per annum growth forecast for the broader market.

With this information, we find it odd that Taiheiyo Cement is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Taiheiyo Cement's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Taiheiyo Cement.

If you're unsure about the strength of Taiheiyo Cement's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.