Olympic Steel, Inc. (NASDAQ:ZEUS) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 51% loss during that time.

Following the heavy fall in price, Olympic Steel's price-to-earnings (or "P/E") ratio of 13.1x might 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 19x and even P/E's above 34x 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.

While the market has experienced earnings growth lately, Olympic Steel's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Olympic Steel's is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. As a result, earnings from three years ago have also fallen 72% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 6.5% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15%, which is noticeably more attractive.

In light of this, it's understandable that Olympic Steel's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Olympic Steel's P/E?

The softening of Olympic Steel's shares means its P/E is now sitting at a pretty low level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Olympic Steel's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Olympic Steel with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Olympic Steel. 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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