JFE Holdings, Inc. (TSE:5411) Might Not Be As Mispriced As It Looks

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 12x, you may consider JFE Holdings, Inc. (TSE:5411) as an attractive investment with its 7.9x 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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While the market has experienced earnings growth lately, JFE Holdings' earnings have gone into reverse gear, which is not great. 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.

View our latest analysis for JFE Holdings

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

Is There Any Growth For JFE Holdings?

In order to justify its P/E ratio, JFE Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 30%. The last three years don't look nice either as the company has shrunk EPS by 55% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 9.7% per year, which is not materially different.

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

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 JFE Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for JFE Holdings (1 is potentially serious) you should be aware of.

Of course, you might also be able to find a better stock than JFE Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.