The Greenbrier Companies, Inc.'s (NYSE:GBX) Earnings Are Not Doing Enough For Some Investors

The Greenbrier Companies, Inc.'s (NYSE:GBX) price-to-earnings (or "P/E") ratio of 7.5x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E's above 35x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Greenbrier Companies as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Greenbrier Companies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Greenbrier Companies.

Is There Any Growth For Greenbrier Companies?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Greenbrier Companies' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. The strong recent performance means it was also able to grow EPS by 354% 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.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 37% as estimated by the three analysts watching the company. With the market predicted to deliver 16% growth , that's a disappointing outcome.

With this information, we are not surprised that Greenbrier Companies is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Greenbrier Companies' 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.

As we suspected, our examination of Greenbrier Companies' analyst forecasts revealed that its outlook for shrinking earnings 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.

You need to take note of risks, for example - Greenbrier Companies has 2 warning signs (and 1 which is significant) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.