Universal Logistics Holdings, Inc. (NASDAQ:ULH) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 78% in the last year.
Even after such a large jump in price, Universal Logistics Holdings' price-to-earnings (or "P/E") ratio of 9.9x might still 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 18x 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.
Universal Logistics Holdings 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. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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.
NasdaqGS:ULH Price to Earnings Ratio vs Industry May 7th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Universal Logistics Holdings.
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like Universal Logistics Holdings' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 114% 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.
Turning to the outlook, the next year should generate growth of 15% as estimated by the sole analyst watching the company. With the market only predicted to deliver 12%, the company is positioned for a stronger earnings result.
With this information, we find it odd that Universal Logistics Holdings is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Bottom Line On Universal Logistics Holdings' P/E
Universal Logistics Holdings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.
Our examination of Universal Logistics Holdings' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Universal Logistics Holdings that you need to be mindful of.
If you're unsure about the strength of Universal Logistics Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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