Shibaura Mechatronics Corporation's (TSE:6590) Price Is Right But Growth Is Lacking After Shares Rocket 29%

Those holding Shibaura Mechatronics Corporation (TSE:6590) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Shibaura Mechatronics may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.1x, since almost half of all companies in Japan have P/E ratios greater than 13x and even P/E's higher than 21x 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.

Our free stock report includes 2 warning signs investors should be aware of before investing in Shibaura Mechatronics. Read for free now.

Shibaura Mechatronics could be doing better as it's been growing earnings less than most other companies lately. 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.

Check out our latest analysis for Shibaura Mechatronics

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

How Is Shibaura Mechatronics' Growth Trending?

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

Retrospectively, the last year delivered a decent 7.3% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 321% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 6.3% over the next year. With the market predicted to deliver 9.7% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Shibaura Mechatronics is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn't enough to lift Shibaura Mechatronics' P/E close to the market median. 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.

We've established that Shibaura Mechatronics 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.

You need to take note of risks, for example - Shibaura Mechatronics has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

You might be able to find a better investment than Shibaura Mechatronics. 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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