TBS Holdings,Inc.'s (TSE:9401) Price Is Right But Growth Is Lacking

With a price-to-earnings (or "P/E") ratio of 10.3x TBS Holdings,Inc. (TSE:9401) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 14x 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.

Recent times have been advantageous for TBS HoldingsInc as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for TBS HoldingsInc

Want the full picture on analyst estimates for the company? Then our free report on TBS HoldingsInc will help you uncover what's on the horizon.

Is There Any Growth For TBS HoldingsInc?

There's an inherent assumption that a company should underperform the market for P/E ratios like TBS HoldingsInc's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 94% 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 slump, contracting by 13% each year during the coming three years according to the six analysts following the company. With the market predicted to deliver 10% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that TBS HoldingsInc's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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.

As we suspected, our examination of TBS HoldingsInc's analyst forecasts revealed that its outlook for shrinking earnings 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for TBS HoldingsInc (1 is significant!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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

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.