Tokyo Tatemono Co., Ltd. (TSE:8804) Stock Catapults 31% Though Its Price And Business Still Lag The Market

Tokyo Tatemono Co., Ltd. (TSE:8804) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 65%.

In spite of the firm bounce in price, given about half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Tokyo Tatemono as an attractive investment with its 12.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Tokyo Tatemono could be doing better as it's been growing earnings less than most other companies lately. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Tokyo Tatemono

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

Does Growth Match The Low P/E?

Tokyo Tatemono's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.7% last year. This was backed up an excellent period prior to see EPS up by 42% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 4.6% each year as estimated by the ten analysts watching the company. That's shaping up to be materially lower than the 11% per annum growth forecast for the broader market.

In light of this, it's understandable that Tokyo Tatemono's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Tokyo Tatemono's P/E

Tokyo Tatemono's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Tokyo Tatemono maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Tokyo Tatemono (of which 1 makes us a bit uncomfortable!) you should know about.

Of course, you might also be able to find a better stock than Tokyo Tatemono. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.