Nasdaq
華爾街日報Austin Engineering Limited's (ASX:ANG) Shares Bounce 32% But Its Business Still Trails The Market
Austin Engineering Limited (ASX:ANG) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 50% share price decline over the last year.
In spite of the firm bounce in price, Austin Engineering's price-to-earnings (or "P/E") ratio of 6.4x might still make it look like a strong buy right now compared to the market in Australia, where around half of the companies have P/E ratios above 22x and even P/E's above 41x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Recent times haven't been advantageous for Austin Engineering as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
See our latest analysis for Austin Engineering
Is There Any Growth For Austin Engineering?
In order to justify its P/E ratio, Austin Engineering would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered a decent 3.6% gain to the company's bottom line. EPS has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 9.4% per annum as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 17% per annum growth forecast for the broader market.
With this information, we can see why Austin Engineering is trading at a P/E lower than the market. 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 Austin Engineering's P/E?
Shares in Austin Engineering are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Austin Engineering maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Austin Engineering (1 makes us a bit uncomfortable!) that you need to be mindful of.
Of course, you might also be able to find a better stock than Austin Engineering. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.