Golden Ocean Group Limited's (NASDAQ:GOGL) price-to-earnings (or "P/E") ratio of 14.5x might make it look like a 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 32x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
With earnings that are retreating more than the market's of late, Golden Ocean Group has been very sluggish. 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 Golden Ocean Group.
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Golden Ocean Group would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 43%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 198% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.
Looking ahead now, EPS is anticipated to climb by 22% each year during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 10.0% per annum growth forecast for the broader market.
With this information, we find it odd that Golden Ocean Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Golden Ocean Group'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 Golden Ocean Group currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
You should always think about risks. Case in point, we've spotted 3 warning signs for Golden Ocean Group you should be aware of.
You might be able to find a better investment than Golden Ocean Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Golden Ocean Group Limited (NASDAQ: GOGL)的市盈率爲14.5倍,相對於美國市場中有一半公司的市盈率超過17倍,甚至有市盈率高達32倍的公司來說,它可能看起來像是可以買入的。然而,市盈率可能低有其原因,需要進一步調查才能判斷其是否合理。
Golden Ocean Group的盈利比市場普遍萎縮得多。市盈率可能很低是因爲投資者認爲其糟糕的盈利表現不會有所改善。如果你仍然相信這個業務,你更希望公司沒有出現虧損。或者至少,如果你的計劃是在低迷時期買入股票,你希望盈利下滑不會進一步惡化。