Mitsubishi Logistics Corporation's (TSE:9301) Share Price Not Quite Adding Up

It's not a stretch to say that Mitsubishi Logistics Corporation's (TSE:9301) price-to-earnings (or "P/E") ratio of 12.8x right now seems quite "middle-of-the-road" compared to the market in Japan, where the median P/E ratio is around 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Mitsubishi Logistics has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Mitsubishi Logistics

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

How Is Mitsubishi Logistics' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Mitsubishi Logistics' to be considered reasonable.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 1.4% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 7.3% each year as estimated by the four analysts watching the company. With the market predicted to deliver 11% growth each year, that's a disappointing outcome.

In light of this, it's somewhat alarming that Mitsubishi Logistics' P/E sits in line with the majority of other companies. 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. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mitsubishi Logistics currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

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

You might be able to find a better investment than Mitsubishi Logistics. 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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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.