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Towa Pharmaceutical Co., Ltd. (TSE:4553) Stock Catapults 26% Though Its Price And Business Still Lag The Market

Simply Wall St · 1d ago

Towa Pharmaceutical Co., Ltd. (TSE:4553) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

In spite of the firm bounce in price, Towa Pharmaceutical's price-to-earnings (or "P/E") ratio of 8.4x might still 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 15x and even P/E's above 22x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Towa Pharmaceutical certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Towa Pharmaceutical

pe-multiple-vs-industry
TSE:4553 Price to Earnings Ratio vs Industry December 10th 2025
Want the full picture on analyst estimates for the company? Then our free report on Towa Pharmaceutical will help you uncover what's on the horizon.

Is There Any Growth For Towa Pharmaceutical?

The only time you'd be truly comfortable seeing a P/E as low as Towa Pharmaceutical's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The strong recent performance means it was also able to grow EPS by 120% 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.

Looking ahead now, EPS is anticipated to slump, contracting by 0.4% each year during the coming three years according to the five analysts following the company. With the market predicted to deliver 9.1% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Towa Pharmaceutical's 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.

What We Can Learn From Towa Pharmaceutical's P/E?

Despite Towa Pharmaceutical's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Towa Pharmaceutical's 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.

Before you take the next step, you should know about the 2 warning signs for Towa Pharmaceutical (1 is significant!) that we have uncovered.

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