MDU Resources Group, Inc. (NYSE:MDU) shareholders that were waiting for something to happen have been dealt a blow with a 44% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Even after such a large drop in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider MDU Resources Group as a highly attractive investment with its 7.5x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, MDU Resources Group has been doing quite well of late. 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.

How Is MDU Resources Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as MDU Resources Group's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 8.5%. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 3.2% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 18% as estimated by the two analysts watching the company. That's not great when the rest of the market is expected to grow by 15%.

With this information, we are not surprised that MDU Resources 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From MDU Resources Group's P/E?

MDU Resources Group's P/E looks about as weak as its stock price lately. 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.

We've established that MDU Resources Group 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for MDU Resources Group you should be aware of, and 1 of them shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.