When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Yalla Group Limited (NYSE:YALA) as a highly attractive investment with its 6.3x P/E ratio.  Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.  

Yalla Group certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards.   It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E.  If you 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.    

NYSE:YALA Price to Earnings Ratio vs Industry March 15th 2024

Keen to find out how analysts think Yalla Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/E ratio, Yalla Group would need to produce anemic growth that's substantially trailing the market.  

Retrospectively, the last year delivered an exceptional 44% gain to the company's bottom line.   Still, EPS has barely risen at all from three years ago in total, which is not ideal.  Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.  

Looking ahead now, EPS is anticipated to slump, contracting by 0.9% during the coming year according to the three analysts following the company.  That's not great when the rest of the market is expected to grow by 11%.

With this information, we are not surprised that Yalla Group is trading at a P/E lower than the market.  Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse.  Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.  

The Bottom Line On Yalla Group's P/E

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.

As we suspected, our examination of Yalla Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E.  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 1 warning sign for Yalla Group that you need to be mindful 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.