Austin Engineering Limited's (ASX:ANG) 34% Dip In Price Shows Sentiment Is Matching Earnings

Austin Engineering Limited (ASX:ANG) shareholders that were waiting for something to happen have been dealt a blow with a 34% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

After such a large drop in price, Austin Engineering's price-to-earnings (or "P/E") ratio of 5.1x might make it look like a strong buy right now compared to the market in Australia, where around half of the companies have P/E ratios above 22x and even P/E's above 39x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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With earnings growth that's inferior to most other companies of late, Austin Engineering has been relatively sluggish. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Austin Engineering

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Austin Engineering.

How Is Austin Engineering's Growth Trending?

In order to justify its P/E ratio, Austin Engineering would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 3.6% gain to the company's bottom line. The latest three year period has also seen a 18% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the two analysts watching the company. With the market predicted to deliver 17% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Austin Engineering's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Austin Engineering's P/E looks about as weak as its stock price lately. 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 Austin Engineering's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Austin Engineering (1 is a bit unpleasant!) that you need to take into consideration.

You might be able to find a better investment than Austin Engineering. 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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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.