Dorian LPG Ltd.'s (NYSE:LPG) price-to-earnings (or "P/E") ratio of 7x might make it look like a strong 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.  Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.  

DorianG 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.   One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon.  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.    

Check out our latest analysis for DorianG

NYSE:LPG Price to Earnings Ratio vs Industry January 2nd 2024

If you'd like to see what analysts are forecasting going forward, you should check out our free report on DorianG.

Is There Any Growth For DorianG?  

DorianG's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.  

Taking a look back first, we see that the company grew earnings per share by an impressive 162% last year.    The latest three year period has also seen an excellent 320% overall rise in EPS, aided by its short-term performance.  Therefore, it's fair to say the earnings growth recently has been superb for the company.  

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth is heading into negative territory, declining 19% per year over the next three years.  Meanwhile, the broader market is forecast to expand by 13% each year, which paints a poor picture.

In light of this, it's understandable that DorianG's P/E would sit below the majority of other companies.  Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse.  There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.  

The Bottom Line On DorianG's P/E

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.

We've established that DorianG maintains its low P/E on the weakness of its forecast for sliding earnings, 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.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for DorianG (1 shouldn't be ignored!) 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.