Insufficient Growth At Fuji Seal International, Inc. (TSE:7864) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 12.1x Fuji Seal International, Inc. (TSE:7864) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 22x 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.

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Fuji Seal International 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 degrade substantially, which has repressed the P/E. 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 Fuji Seal International

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Is There Any Growth For Fuji Seal International?

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

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 155% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 7.0% per year during the coming three years according to the four analysts following the company. With the market predicted to deliver 9.3% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Fuji Seal International's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As we suspected, our examination of Fuji Seal International's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Fuji Seal International with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Fuji Seal International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.