The Price Is Right For Mitsui Fudosan Co., Ltd. (TSE:8801)

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 12x, you may consider Mitsui Fudosan Co., Ltd. (TSE:8801) as a stock to avoid entirely with its 19.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

We've discovered 3 warning signs about Mitsui Fudosan. View them for free.

While the market has experienced earnings growth lately, Mitsui Fudosan's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mitsui Fudosan

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mitsui Fudosan.

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

Mitsui Fudosan's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 6.1%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 36% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the eleven analysts following the company. With the market only predicted to deliver 9.8% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Mitsui Fudosan's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Mitsui Fudosan's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mitsui Fudosan maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Mitsui Fudosan (including 1 which is a bit unpleasant).

You might be able to find a better investment than Mitsui Fudosan. 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.