A Piece Of The Puzzle Missing From Pressman Advertising Limited's (NSE:PRESSMN) Share Price

Pressman Advertising Limited's (NSE:PRESSMN) price-to-earnings (or "P/E") ratio of 8.8x might make it look like a buy right now compared to the market in India, where around half of the companies have P/E ratios above 13x and even P/E's above 30x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For instance, Pressman Advertising's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Pressman Advertising

Where Does Pressman Advertising's P/E Sit Within Its Industry?

We'd like to see if P/E's within Pressman Advertising's industry might provide some colour around the company's low P/E ratio. The image below shows that the Media industry as a whole also has a P/E ratio lower than the market. So this certainly goes a fair way towards explaining the company's ratio right now. Some industry P/E's don't move around a lot and right now most companies within the Media industry should be getting stifled. We'd highlight though, the spotlight should be on the anticipated direction of the company's earnings.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Pressman Advertising's earnings, revenue and cash flow.

Is There Any Growth For Pressman Advertising?

In order to justify its P/E ratio, Pressman Advertising would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 22% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

It's interesting to note that the rest of the market is similarly expected to decline by 7.3% over the next year, which is just as bad as the company's recent medium-term earnings decline.

In light of this, the fact Pressman Advertising's P/E sits below the majority of other companies is unanticipated but certainly not shocking. With earnings going in reverse, it's not guaranteed that the P/E has found a floor yet, despite the market heading down in unison. Even just maintaining these prices will be difficult to achieve as recent earnings trends are already weighing down the shares heavily.

What We Can Learn From Pressman Advertising's P/E?

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Pressman Advertising currently trades on a lower than expected P/E since its recent three-year earnings are matching the forecasts for a struggling market. When we see average earnings, we assume potential risks are what might be placing pressure on the P/E ratio. Perhaps there is some hesitation about the company's ability to stay its recent medium-term course and resist further pain to its business from the broader market turmoil. It appears some are indeed anticipating earnings instability, because this relative performance should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Pressman Advertising (1 is a bit concerning) you should be aware of.

Of course, you might also be able to find a better stock than Pressman Advertising. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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