How low was their P/E Ratio at that time? How did it compare to similar companies in the U.S.?

Analysis of P/E Ratios for Japan's Five Major Trading Companies

When Warren Buffett announced investments in Japan's five major trading companies (Itochu, Marubeni, Mitsubishi Corporation, Mitsui & Co., and Sumitomo Corporation) in 2020, their price-to-earnings (P/E) ratios were generally at low levels. Specifically:

• P/E Levels at the Time: The average P/E ratio for these companies ranged between 5 and 7 times. Some even traded at P/E ratios as low as 4–5 times. This reflected the overall sluggishness of the Japanese stock market, the undervaluation of these traditional trading firms by investors, and their characteristics of holding substantial cash and assets while experiencing significant earnings volatility.

• Comparison with U.S. Peers:

  • Comparable U.S. enterprises (such as diversified trading conglomerates, resource-focused holding companies, or investment holding firms like Berkshire Hathaway) typically traded at P/E ratios of 15–25 times or higher. For example, Berkshire Hathaway itself had a P/E ratio of around 20 times at the time, while other U.S. industrial or trading giants (e.g., 3M or General Electric, post-adjustment) also commanded valuations far exceeding those of Japanese trading houses.
  • Discrepancy in Valuation: The P/E ratios of Japanese trading companies were only one-third to one-quarter of their U.S. counterparts, making them appear highly attractive. Buffett emphasized the margin of safety offered by this undervaluation, along with these companies' stable dividend yields (then approximately 4–5%), which significantly exceeded the average for similar U.S. firms (around 2–3%).

This low P/E ratio was a key factor in Buffett’s investment decision, embodying the principle of value investing: acquiring high-quality assets undervalued by the market.