Nomura Real Estate Holdings, Inc.'s (TSE:3231) Share Price Is Matching Sentiment Around Its Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider Nomura Real Estate Holdings, Inc. (TSE:3231) as an attractive investment with its 10.3x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Nomura Real Estate Holdings' and the market's earnings growth lately. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for Nomura Real Estate Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nomura Real Estate Holdings.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Nomura Real Estate Holdings' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The latest three year period has also seen an excellent 38% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 6.5% per year over the next three years. That's shaping up to be materially lower than the 9.3% per year growth forecast for the broader market.

With this information, we can see why Nomura Real Estate Holdings is trading at a P/E lower than the market. 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

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.

As we suspected, our examination of Nomura Real Estate Holdings' 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. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Nomura Real Estate Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.