Hulic Co., Ltd.'s (TSE:3003) Business Is Trailing The Market But Its Shares Aren't

With a median price-to-earnings (or "P/E") ratio of close to 14x in Japan, you could be forgiven for feeling indifferent about Hulic Co., Ltd.'s (TSE:3003) P/E ratio of 12.5x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's inferior to most other companies of late, Hulic has been relatively sluggish. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Hulic

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

Is There Some Growth For Hulic?

Hulic's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a decent 6.8% gain to the company's bottom line. The latest three year period has also seen a 23% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.8% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 9.6% per annum, which is noticeably more attractive.

With this information, we find it interesting that Hulic is trading at a fairly similar P/E to the market. 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.

What We Can Learn From Hulic's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Hulic currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Hulic (1 is a bit concerning) you should be aware 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.

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