Mitsui Mining & Smelting Co., Ltd. (TSE:5706) Stock's 33% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Mitsui Mining & Smelting Co., Ltd. (TSE:5706) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. The last month has meant the stock is now only up 8.8% during the last year.

Even after such a large drop in price, Mitsui Mining & Smelting may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.9x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Mitsui Mining & Smelting has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you 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 Mitsui Mining & Smelting

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

Is There Any Growth For Mitsui Mining & Smelting?

Mitsui Mining & Smelting's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 205%. However, this wasn't enough as the latest three year period has seen a very unpleasant 42% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 9.2% per year as estimated by the nine analysts watching the company. That's shaping up to be similar to the 9.6% per annum growth forecast for the broader market.

In light of this, it's peculiar that Mitsui Mining & Smelting's 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 Key Takeaway

Mitsui Mining & Smelting's recently weak share price has pulled its P/E below most other companies. 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 Mitsui Mining & Smelting's 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. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 3 warning signs for Mitsui Mining & Smelting that you need to take into consideration.

If you're unsure about the strength of Mitsui Mining & Smelting'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.

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