Weis Markets, Inc.’s (NYSE:WMK) price-to-earnings (or “P/E”) ratio of 12.6x 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 19x and even P/E’s above 36x 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 growth that’s exceedingly strong of late, Weis Markets has been doing very well. 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.free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Weis Markets’ Growth Trending?
The only time you’d be truly comfortable seeing a P/E as low as Weis Markets’ is when the company’s growth is on track to lag the market.
If we review the last year of earnings growth, the company posted a terrific increase of 63%. EPS has also lifted 23% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 5.3% shows it’s noticeably more attractive on an annualised basis.
With this information, we find it odd that Weis Markets is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.
What We Can Learn From Weis Markets’ 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 Weis Markets currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
Many other vital risk factors can be found on the company’s balance sheet. Our free balance sheet analysis for Weis Markets with six simple checks will allow you to discover any risks that could be an issue.
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 P/E ratio below 20x).
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This article by Simply Wall St is general in nature. 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.
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