Mimaki Engineering Co., Ltd. (TSE:6638) Might Not Be As Mispriced As It Looks After Plunging 32%

Mimaki Engineering Co., Ltd. (TSE:6638) shares have retraced a considerable 32% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 34%, which is great even in a bull market.

Although its price has dipped substantially, Mimaki Engineering may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.2x, since almost half of all companies in Japan have P/E ratios greater than 14x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Mimaki Engineering certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Mimaki Engineering

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

How Is Mimaki Engineering's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Mimaki Engineering's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 25% each year over the next three years. With the market only predicted to deliver 9.6% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Mimaki Engineering's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Mimaki Engineering's recently weak share price has pulled its P/E below most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Mimaki Engineering currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Mimaki Engineering (1 shouldn't be ignored!) that you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com