Benign Growth For Shikoku Electric Power Company, Incorporated (TSE:9507) Underpins Its Share Price

When close to half the companies in Japan have price-to-earnings ratios (or "P/E's") above 15x, you may consider Shikoku Electric Power Company, Incorporated (TSE:9507) as a highly attractive investment with its 4.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Shikoku Electric Power Company hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Shikoku Electric Power Company

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How Is Shikoku Electric Power Company's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Shikoku Electric Power Company's to be considered reasonable.

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 18%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 14% each year as estimated by the four analysts watching the company. Meanwhile, the broader market is forecast to expand by 9.5% each year, which paints a poor picture.

In light of this, it's understandable that Shikoku Electric Power Company's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Shikoku Electric Power Company's P/E?

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 Shikoku Electric Power Company maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Shikoku Electric Power Company (of which 2 shouldn't be ignored!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.