MITSUI-SOKO HOLDINGS Co., Ltd.'s (TSE:9302) Business Is Trailing The Market But Its Shares Aren't

With a price-to-earnings (or "P/E") ratio of 29.1x MITSUI-SOKO HOLDINGS Co., Ltd. (TSE:9302) may be sending very bearish signals at the moment, given that almost half of all companies in Japan have P/E ratios under 14x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

While the market has experienced earnings growth lately, MITSUI-SOKO HOLDINGS' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for MITSUI-SOKO HOLDINGS

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

How Is MITSUI-SOKO HOLDINGS' Growth Trending?

In order to justify its P/E ratio, MITSUI-SOKO HOLDINGS would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 8.6%. This means it has also seen a slide in earnings over the longer-term as EPS is down 36% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 9.6% each year during the coming three years according to the four analysts following the company. With the market predicted to deliver 9.5% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it interesting that MITSUI-SOKO HOLDINGS is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

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.

We've established that MITSUI-SOKO HOLDINGS currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for MITSUI-SOKO HOLDINGS with six simple checks.

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

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

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.