Some Shareholders Feeling Restless Over Maeda Kosen Co., Ltd.'s (TSE:7821) P/E Ratio

There wouldn't be many who think Maeda Kosen Co., Ltd.'s (TSE:7821) price-to-earnings (or "P/E") ratio of 13.4x is worth a mention when the median P/E in Japan is similar at about 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Maeda Kosen certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Maeda Kosen

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

How Is Maeda Kosen's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 50%. The strong recent performance means it was also able to grow EPS by 112% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 1.8% during the coming year according to the three analysts following the company. With the market predicted to deliver 9.9% growth , the company is positioned for a weaker earnings result.

In light of this, it's curious that Maeda Kosen's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Maeda Kosen'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 Maeda Kosen currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 1 warning sign for Maeda Kosen that you should be aware of.

Of course, you might also be able to find a better stock than Maeda Kosen. 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.

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