Nasdaq
華爾街日報Dingdong (Cayman) Limited (NYSE:DDL) Stock Catapults 33% Though Its Price And Business Still Lag The Market
Dingdong (Cayman) Limited (NYSE:DDL) shares have continued their recent momentum with a 33% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.
In spite of the firm bounce in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Dingdong (Cayman) as an attractive investment with its 15.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Dingdong (Cayman) 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 Dingdong (Cayman)
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Dingdong (Cayman) would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 44%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 2.3% during the coming year according to the five analysts following the company. With the market predicted to deliver 16% growth , the company is positioned for a weaker earnings result.
With this information, we can see why Dingdong (Cayman) is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From Dingdong (Cayman)'s P/E?
The latest share price surge wasn't enough to lift Dingdong (Cayman)'s P/E close to the market median. 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.
We've established that Dingdong (Cayman) 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.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Dingdong (Cayman) that you should be aware of.
Of course, you might also be able to find a better stock than Dingdong (Cayman). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.