Caleres, Inc. (NYSE:CAL) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 40%.

In spite of the firm bounce in price, Caleres' price-to-earnings (or "P/E") ratio of 8.9x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Caleres as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Growth For Caleres?

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

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 9.3% per annum during the coming three years according to the five analysts following the company. With the market predicted to deliver 10% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it odd that Caleres is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Caleres' P/E

Despite Caleres' 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.

We've established that Caleres currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Caleres you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.