With a price-to-earnings (or "P/E") ratio of 10.6x Nomura Real Estate Holdings, Inc. (TSE:3231) 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent earnings growth for Nomura Real Estate Holdings has been in line with the market. 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.
See our latest analysis for Nomura Real Estate Holdings
How Is Nomura Real Estate Holdings' Growth Trending?
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.
If we review the last year of earnings growth, the company posted a worthy increase of 8.6%. EPS has also lifted 20% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
Looking ahead now, EPS is anticipated to climb by 8.7% per year during the coming three years according to the ten analysts following the company. With the market predicted to deliver 9.6% growth each year, the company is positioned for a comparable earnings result.
In light of this, it's peculiar that Nomura Real Estate Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Bottom Line On Nomura Real Estate Holdings' P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Nomura Real Estate Holdings currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Nomura Real Estate Holdings, and understanding them should be part of your investment process.
If these risks are making you reconsider your opinion on Nomura Real Estate Holdings, 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.