Benign Growth For Greens Co.,Ltd. (TSE:6547) 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 Greens Co.,Ltd. (TSE:6547) as a highly attractive investment with its 6.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
With earnings growth that's inferior to most other companies of late, GreensLtd has been relatively sluggish. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.
See our latest analysis for GreensLtd
Is There Any Growth For GreensLtd?
There's an inherent assumption that a company should far underperform the market for P/E ratios like GreensLtd's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.4% last year. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 1.4% per year over the next three years. With the market predicted to deliver 8.9% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that GreensLtd's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From GreensLtd's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of GreensLtd's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 1 warning sign for GreensLtd you should know about.
If you're unsure about the strength of GreensLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.