Sumitomo Metal Mining Co., Ltd.'s (TSE:5713) Shares Not Telling The Full Story

There wouldn't be many who think Sumitomo Metal Mining Co., Ltd.'s (TSE:5713) price-to-earnings (or "P/E") ratio of 14.6x is worth a mention when the median P/E in Japan is similar at about 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Sumitomo Metal Mining hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Sumitomo Metal Mining

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

Is There Some Growth For Sumitomo Metal Mining?

The only time you'd be comfortable seeing a P/E like Sumitomo Metal Mining's is when the company's growth is tracking the market closely.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. The last three years don't look nice either as the company has shrunk EPS by 65% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 21% each year over the next three years. With the market only predicted to deliver 10% per year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Sumitomo Metal Mining's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Sumitomo Metal Mining's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sumitomo Metal Mining currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Sumitomo Metal Mining that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.