The PS International Group Ltd. (NASDAQ:PSIG) share price has fared very poorly over the last month, falling by a substantial 27%. For any long-term shareholders, the last month ends a year to forget by locking in a 95% share price decline.
Following the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider PS International Group as a highly attractive investment with its 3.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Recent times have been quite advantageous for PS International Group as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 PS International Group's Growth Trending?
PS International Group'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.
Retrospectively, the last year delivered an exceptional 89% gain to the company's bottom line. Still, incredibly EPS has fallen 99% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's an unpleasant look.
In light of this, it's understandable that PS International Group's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.
What We Can Learn From PS International Group's P/E?
Shares in PS International Group have plummeted and its P/E is now low enough to touch the ground. 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 PS International Group revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
Before you settle on your opinion, we've discovered 4 warning signs for PS International Group (2 can't be ignored!) that you should be aware 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.
