Earnings Working Against Kintetsu Group Holdings Co.,Ltd.'s (TSE:9041) Share Price

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider Kintetsu Group Holdings Co.,Ltd. (TSE:9041) as an attractive investment with its 12x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Kintetsu Group HoldingsLtd could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Kintetsu Group HoldingsLtd

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Is There Any Growth For Kintetsu Group HoldingsLtd?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.8%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 9.3% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 3.1% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.0% per annum, which is noticeably more attractive.

In light of this, it's understandable that Kintetsu Group HoldingsLtd'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 Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Kintetsu Group HoldingsLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Kintetsu Group HoldingsLtd (1 is concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Kintetsu Group HoldingsLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.