Earnings Not Telling The Story For FUJIFILM Holdings Corporation (TSE:4901)

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") below 14x, you may consider FUJIFILM Holdings Corporation (TSE:4901) as a stock to potentially avoid with its 18.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for FUJIFILM Holdings has been in line with the market. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for FUJIFILM Holdings

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

Is There Enough Growth For FUJIFILM Holdings?

In order to justify its P/E ratio, FUJIFILM Holdings would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. Pleasingly, EPS has also lifted 34% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 7.1% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 9.6% per annum growth forecast for the broader market.

With this information, we find it concerning that FUJIFILM Holdings is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

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 FUJIFILM Holdings currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for FUJIFILM Holdings with six simple checks on some of these key factors.

If you're unsure about the strength of FUJIFILM Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.