Tokyu Fudosan Holdings Corporation's (TSE:3289) Prospects Need A Boost To Lift Shares

With a price-to-earnings (or "P/E") ratio of 9.8x Tokyu Fudosan Holdings Corporation (TSE:3289) may be sending bullish signals at the moment, given that almost half of all companies in Japan have P/E ratios greater than 15x and even P/E's higher than 23x are not unusual. 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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With earnings growth that's superior to most other companies of late, Tokyu Fudosan Holdings has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

Check out our latest analysis for Tokyu Fudosan Holdings

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

How Is Tokyu Fudosan Holdings' Growth Trending?

In order to justify its P/E ratio, Tokyu Fudosan Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 89%. The strong recent performance means it was also able to grow EPS by 121% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings growth is heading into negative territory, declining 1.4% per year over the next three years. Meanwhile, the broader market is forecast to expand by 9.0% per year, which paints a poor picture.

In light of this, it's understandable that Tokyu Fudosan Holdings' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Tokyu Fudosan Holdings' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

It is also worth noting that we have found 2 warning signs for Tokyu Fudosan Holdings (1 is a bit unpleasant!) that you need to take into consideration.

You might be able to find a better investment than Tokyu Fudosan Holdings. 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.