There Is A Reason Nomura Real Estate Holdings, Inc.'s (TSE:3231) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 10.4x 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 23x 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 times haven't been advantageous for Nomura Real Estate Holdings as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

See our latest analysis for Nomura Real Estate Holdings

Keen to find out how analysts think Nomura Real Estate Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 7.4%. Pleasingly, EPS has also lifted 70% 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 superb for the company.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 5.2% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.1% per year, which is noticeably more attractive.

In light of this, it's understandable that Nomura Real Estate Holdings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Nomura Real Estate Holdings' 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.

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. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Nomura Real Estate Holdings (of which 1 can't be ignored!) you should know about.

If you're unsure about the strength of Nomura Real Estate Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.