When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Warrior Met Coal, Inc. (NYSE:HCC) as a highly attractive investment with its 8x P/E ratio. 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.
Warrior Met Coal has been struggling lately as its earnings have declined faster than most other companies. 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.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Warrior Met Coal.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Warrior Met Coal's to be considered reasonable.
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 9.3%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Looking ahead now, EPS is anticipated to slump, contracting by 2.7% each year during the coming three years according to the five analysts following the company. That's not great when the rest of the market is expected to grow by 10% per annum.
With this information, we are not surprised that Warrior Met Coal is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. 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 Warrior Met Coal's P/E
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Warrior Met Coal maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Warrior Met Coal you should know about.
If you're unsure about the strength of Warrior Met Coal's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
當將近一半的美國公司的市盈率(或 「市盈率」)高於19倍時,您可以將Warrior Met Coal, Inc.(紐約證券交易所代碼:HCC)的市盈率爲8倍,是一項極具吸引力的投資。但是,僅按面值計算市盈率是不明智的,因爲可以解釋爲什麼市盈率如此有限。
Warrior Met Coal最近一直處於困境,因爲其收益下降速度快於大多數其他公司。市盈率可能很低,因爲投資者認爲這種糟糕的收益表現根本不會改善。如果你仍然相信公司的業務,你寧願公司不流失收益。或者至少,如果你的計劃是在失寵的時候買入一些股票,你希望收益下滑不會變得更糟。
如果你想了解分析師對未來的預測,你應該查看我們關於Warrior Met Coal的免費報告。
增長與低市盈率相匹配嗎?
人們固有的假設是,如果像Warrior Met Coal這樣的市盈率才算合理,公司的表現應該遠遠低於市場。