Cox Co., Ltd.'s (TSE:9876) Share Price Is Matching Sentiment Around Its Earnings

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 14x, you may consider Cox Co., Ltd. (TSE:9876) as a highly attractive investment with its 5.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Cox has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Cox

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cox will help you shine a light on its historical performance.

Is There Any Growth For Cox?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially higher than the company's recent medium-term annualised growth rates.

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

The Bottom Line On Cox's 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.

As we suspected, our examination of Cox revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Cox is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Cox. 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.