Investors Holding Back On Kyushu Electric Power Company, Incorporated (TSE:9508)

Kyushu Electric Power Company, Incorporated's (TSE:9508) price-to-earnings (or "P/E") ratio of 7.4x might make it look like a buy right now compared to the market in Japan, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Kyushu 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 Kyushu Electric Power Company

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Kyushu Electric Power Company's is when the company's growth is on track to lag 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 39%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 489% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 8.9% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 10% per annum, which is not materially different.

With this information, we find it odd that Kyushu Electric Power Company is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Kyushu Electric Power Company's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Kyushu Electric Power Company currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Kyushu Electric Power Company you should be aware of, and 1 of them shouldn't be ignored.

You might be able to find a better investment than Kyushu Electric Power Company. 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.