With a price-to-earnings (or "P/E") ratio of 9.1x J.S.B.Co.,Ltd. (TSE:3480) 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 have been advantageous for J.S.B.Co.Ltd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for J.S.B.Co.Ltd
How Is J.S.B.Co.Ltd's Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like J.S.B.Co.Ltd's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. Pleasingly, EPS has also lifted 128% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 3.2% per year as estimated by the two analysts watching the company. That's not great when the rest of the market is expected to grow by 10% each year.
With this information, we are not surprised that J.S.B.Co.Ltd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Bottom Line On J.S.B.Co.Ltd'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.
As we suspected, our examination of J.S.B.Co.Ltd's analyst forecasts revealed that its outlook for shrinking earnings 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.
You should always think about risks. Case in point, we've spotted 2 warning signs for J.S.B.Co.Ltd you should be aware of, and 1 of them is significant.
You might be able to find a better investment than J.S.B.Co.Ltd. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
About TSE:3480
J.S.B.Co.Ltd
Engages in the planning, development, brokerage, and management of condominiums in Japan.
Excellent balance sheet with proven track record.
