The Academy Sports and Outdoors, Inc. (NASDAQ:ASO) share price has done very well over the last month, posting an excellent gain of 32%. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

In spite of the firm bounce in price, Academy Sports and Outdoors' price-to-earnings (or "P/E") ratio of 9.3x 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 33x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings that are retreating more than the market's of late, Academy Sports and Outdoors has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Academy Sports and Outdoors

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a frustrating 8.3% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 115% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 13% per annum over the next three years. That's shaping up to be similar to the 12% per year growth forecast for the broader market.

With this information, we find it odd that Academy Sports and Outdoors 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 Academy Sports and Outdoors' P/E

Academy Sports and Outdoors' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Academy Sports and Outdoors currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Academy Sports and Outdoors with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Academy Sports and Outdoors. 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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